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BP v. Libya 53 Ilr 297 PDF
BP v. Libya 53 Ilr 297 PDF
1. The texts which appear below are printed with the permission of BP Exploration Company (Libya) Limited
[BP]. BP on 13 October 1978 wrote to the Ministry of Petroleum and Mineral Resources of the Libyan Arab
Jamahiriya indicating that BP intended to consent to the publication of the texts and asking the Ministry also to
give its consent in “the interests of international scholarship”. The Ministry replied as follows:
We would like to take this opportunity to reemphasize the long standing position of the Libyan
Government of not recognizing as valid, or of any legal value, actions taken by certain oil companies in
challenge of nationalization laws decreed by competent legislative authorities in the Jamahiriya. We consider
such nationalization an absolute sovereign right of the State, to be exercised according to its discretion, and
may not be subject to adjudication in any court of law, let alone an arbitration proceeding. Hence, we do
not deem the steps taken by your company following its lawful and effective nationalization, as proper. It
follows, logically, that we could not possibly consent to “publishing” documents which we consider null and
void.
Should publication of said “awards” take place by your unilateral consent, and should the interests of the
Libyan Government be damaged in any manner, due to such publication, we shall take all measures available
to us to protect our interests.
While we share your concern about international scholarship we regret for not being of great help in as
far as sovereign matters are concerned.
53 ILR 297 298
Clause 28 of the Concession provided for the settlement of disputes by arbitration and
stated that the Concession
shall be governed by and interpreted in accordance with the principles of law of Libya
common to the principles of international law and in the absence of such common principles
then by and in accordance with the general principles of law, including such of those principles
as may have been applied by international tribunals.
Careful consideration has been given to the letter of the Libyan Ministry of Petroleum and Mineral Resources.
The Editor reads that document as a statement of the logical conclusion to be drawn from the premiss stated by
the Libyan Ministry and notes without comment the view of the Ministry that the nationalization measures are
not subject to arbitration, that the arbitration proceedings are null and void and that there thus exists no text of
which the Ministry can take notice for the purpose of “consenting” to “publication”. The decision to publish the
Award has been taken after consultation with the Sole Arbitrator.
2. On 25 November 1974 BP issued the following statement:
An Agreement has been signed between the Government of the Libyan Arab Republic and BP
Exploration Company (Libya) Limited, which constitutes a full and final settlement of all of the issues
outstanding between the Government and the Company, including the issues arising out of the
Government's takeover in December 1971 of the Company's 50% interest in Concession 65.
Included in the Agreement is provision for the Government to make the Company an immediate cash
payment of approximately £17.4 million sterling. This figure has been arrived at by deducting from the sum
of £62.4 million sterling agreed to be due to the Company, taxes, royalties and other claims by the
Government amounting to £45 million.
On receipt of this payment, the Company has undertaken, among other things, to discontinue its
arbitration proceedings against the Government and to make a further announcement as to its position in
respect of oil produced from the Sarir oilfield.
By an Agreement made on 20th November, 1974, BP Exploration Company (Libya) Limited has
reached a full and final settlement with the Libyan Government of all outstanding disputes between them,
including the dispute relating to Law No. 115 of 7th December, 1971.
Under the terms of the Agreement the Libyan Government undertook to pay a sum of money to the
Company which took into consideration all outstanding claims between the parties to the Agreement.
Payment has now been received by the Company.
Accordingly, the Company hereby notifies all those who may be concerned that no further proceedings
will be commenced by it in respect of crude oil produced from the area of Concession No. 65 in Libya, and
with effect from today's date all notices of rights given by the Company to third parties are hereby
withdrawn.
299 53 ILR 297
On 7 December 1971 the Libyan Government passed a law nationalizing the activities
of the Claimant in respect of Concession 65. This was said by the Libyan Government to
be in retaliation for certain actions by the British Government in the Gulf. The Law
provided that the State should pay compensation to be determined within three months
by a committee to be appointed by the Minister of Petroleum. The Committee did not
report within that period.
The Claimant started arbitration proceedings on 11 December 1971, contending that
the nationalization amounted to a unilateral and unacceptable repudiation of the
Concession. As the Libyan Government did not respond, the Claimants applied to the
President of the International Court of Justice for the appointment of a sole arbitrator
pursuant to the arbitration clause. The President nominated Judge Lagergren as Sole
Arbitrator.
The Claimant asked the Tribunal to declare inter alia that:
(i) the Libyan Nationalization Law was a breach of the Concession;
(ii) the breach was ineffective to terminate the Concession;
(iii) the Claimant is entitled to be restored to the full enjoyment of its rights under the
Concession;
(iv) the Claimant is the owner of its share of any oil extracted from the Concession area
after, as well as before, the date of nationalization;
(v) the Claimant is entitled to damages.
The Claimant contended that in holding that the Libyan Nationalization Law was effective to
terminate the Concession the Tribunal had made the error (inter alia) of permitting a party to a
contract by its own breach to put an end to the contract. This, the Claimant asserted, was
contrary to the principles of Libyan law and of international law as well as to general principles of
law. The Claimant also alleged certain procedural defects in the Award. To cure these defects the
Claimant urged the Tribunal to re-open and continue the proceedings on the merits. The
Claimant invoked Danish law—as the law governing the procedure of the arbitration—in
support of its contention that the Tribunal might and should re-open the
53 ILR 297 300
Held:—That the Tribunal's decision rejecting the Claimant's request for declarations
relating to the continuing validity and effect of the concession was final and that,
therefore, under Danish law the Tribunal was not competent to re-open the
proceedings. The Award (Competence to re-open First Stage of Proceedings) is printed
at pp. 375–388 below.
AWARD (MERITS)
CONTENTS
Page
PART I
CONSTITUTION OF THE TRIBUNAL 302
PART II
PROCEEDINGS OF THE TRIBUNAL 305
PART III
THE JURISDICTION OF THE TRIBUNAL. THE PROCEDURAL LAW OF THE
308
ARBITRATION. THE EFFECT OF THE RESPONDENT'S DEFAULT
1. The Jurisdiction of the Tribunal 308
2. The Procedural Law of the Arbitration 308
3. The Effect of the Respondent's Default 311
PART IV
The Facts 313
1. The Nationalisation 313
2. The Contractual Relationship Between the Claimant and the Respondent 318
(a) Outline of Contractual Developments 318
(b) Certain Contractual Aspects 321
PART V
THE CLAIMS 323
PART VI
THE ISSUES 324
1. Nature of the Concession 324
2. Applicable Law 324
3. Breach of Contract 325
4. The Effect of the Breach of Contract 325
PART VII
OPINION OF THE TRIBUNAL 326
1. Introduction 326
2. Nature of the Concession 327
3. Applicable Law 327
301 53 ILR 297
DECISIONS 355
This Award is rendered in the case between BP Exploration Company (Libya)
Limited, Claimant,
represented by Mr. J. W. Gauntlett, as Agent;
Mr. E. Lauterpacht, Q.C., Mr. R. W. Bentham, Mr. K. Rokinson, Mr. J. G. Collier,
and Mr. P. N. Legh-Jones, as Counsel;
Dr. F. A. Mann, assisted by Mr. L. A. Collins, as Special Consultant;
Professor I. Foighel, Me. J. Loyrette, Professor M. A. Omar, Professor A. Phillip,
Professor W. L. M. Reese, Professor P. Weil, Professor W. F. Young, Jr., and Professor
K. Zweigert, as Consultants;
Mr. D. A. G. Sarre and Mr. K. Jameson;
and The Government of the Libyan Arab Republic, Respondent.
53 ILR 297 302
[3] PART 1
[4] 2. The institution of Arbitration proceedings shall take place upon the receipt by one of
such parties of a written request for Arbitration from the other which request shall specify the
matter in respect of which Arbitration is required and name the Arbitrator appointed by the
party requiring Arbitration.
3. The party receiving the request shall within 90 days of such receipt appoint its Arbitrator
and notify this appointment to the other of such parties failing which such other party may
request the President, or in the case referred to in paragraph 1 above, the Vice-President, of the
International Court of Justice to appoint a Sole Arbitrator and the decision of a Sole Arbitrator
so appointed shall be binding upon both such parties.
4. If the Arbitrators appointed by such parties fail to agree upon a decision within 6 months
of the institution of Arbitration proceedings or any such Arbitrator becomes unable or
unwilling to perform his functions at any time within such period, the Umpire shall then
enter upon the Arbitration. The decision of the Arbitrators, or in case of a difference of
opinion between them the decision of the Umpire, shall be final. If the Umpire or
303 53 ILR 297
the Sole Arbitrator, as the case may be, is unable or unwilling to enter upon or complete the
Arbitration, then, unless such parties otherwise agree, a substitute will be appointed at the
request of either such party by the President, or, in the case referred to in paragraph 1 above,
the Vice-President, of the International Court of Justice.
5. The Umpire however appointed or the Sole Arbitrator shall not be either a national of Libya
or of the country in which the Company or any Company which directly or indirectly controls
it was incorporated nor shall he be or have been in the employ of either of such parties or of
the Government of Libya or of any such Country as aforesaid.
The Arbitrators or, in the event they fail to agree within 60 days from the date of appointment
of the second Arbitrator, then the Umpire, or, in the event a Sole Arbitrator is appointed, then
the Sole Arbitrator, shall determine the applicability of this Clause and the procedure to be
followed in the Arbitration.
[5] In giving a decision the Arbitrators, the Umpire or the Sole Arbitrator, as the case may be,
shall specify an adequate period of time during which the party to the difference or dispute
against whom the decision is given shall conform to the decision, and such party shall not be in
default if that party has conformed to the decision prior to the expiry of that period.
5. The place of Arbitration shall be such as may be agreed by such parties and in default of
agreement between them within 120 days from the date of institution of Arbitration
proceedings as specified in paragraph 2 above, shall be determined by the Arbitrators or, in the
event the Arbitrators fail to agree within 60 days from the date of appointment of the second
Arbitrator, then by the Umpire or, in the event a Sole Arbitrator is appointed, then by the Sole
Arbitrator.
7. This Concession shall be governed by and interpreted in accordance with the principles of
law of Libya common to the principles of international law and in the absence of such
common principles then by and in accordance with the general principles of law, including
such of those principles as may have been applied by international tribunals.
8. The costs of the Arbitration shall be borne by such parties in such proportion and manner as
may be provided in the decision.
The full text of the Claimant's letter of 11 December 1971 is set out below; it
appears from it that, in conformity with paragraph 2 of Clause 28 quoted above, the
letter did specify the matter in respect of which arbitration was required, and the
Claimant therein did name an arbitrator appointed by it:
We refer to the action taken by the Government of the Libyan Arab Republic on December
7th 1971 by the issue of the Law which, inter alia, provides for the nationalisation of ‘the
activities of the BP Exploration Company (Libya) Limited in Petroleum Concession Number
65’ and for the vesting of ‘all the funds, rights, assets and shares related to said activities’ in the
Arab Gulf Company for Exploration which is to be formed under this Law.
53 ILR 297 304
[6] It is evident that this action purports to deprive the Company of the rights which it
possesses under and in relation to Concession Number 65 dated 18th December 1957.
This action amounts to an attempt at total and unilateral repudiation by the Government of
the Libyan Arab Republic of the Company's rights and accordingly to a grave breach thereof.
In addition the arbitrary and discriminary action of the Government in this respect also
constitutes a violation of established principles of international law.
The Company does not accept this purported repudiation or breach of its rights and
accordingly a difference and dispute has arisen between the Government and the Company
within the terms of Clause 28 of the Concession.
Since the manner and form of the Government's action do not leave open any other form of
settlement of this difference and dispute, the Company now requests, in accordance with
Clause 28(2) of the Concession, that this difference and dispute be referred to arbitration and
hereby informs the Government that it has appointed as its arbitrator Professor Sir Humphrey
Waldock, Q.C. Further, the Company hereby requests the Government to nominate its
arbitrator in accordance with Clause 28(3).
Meanwhile the Company desires to make it clear that as the rights of the Company are capable
of alteration only by mutual consent and not by unilateral action the rights of the Company
continue to be those under and in relation to its Concession.
The Company, therefore, advises you that it will take such steps as it may consider necessary or
desirable to assert or protect all its rights.
This premature repudiation of the Agreement, 40 years before the expiry of its term, is a
fundamental breach of the Concession occasioning a claim by the Company for reparation,
and giving rise to a dispute within the meaning of Clause 28.
The President of the International Court of Justice, Sir Muhammad Zafrullah Khan,
on 28 April 1972 appointed Judge Gunnar Lagergren, President of the Court of Appeal
for Western Sweden, Sole Arbitrator to hear and determine the dispute. He is qualified
under paragraph 5 of Clause 28 to receive such appointment. Thus the Tribunal was
duly constituted.
PART II
The Sole Arbitrator, on 8 May 1972, invited both Parties to attend a first meeting of
the Tribunal in Gothenburg. By letters of 8 June 1972, similarly sent to both Parties,
the meeting was fixed to take place on 4 July 1972. In the case of the Respondent, the
latter communication was addressed to the Minister of Petroleum and delivered against
acknowledgment of receipt to the Chargé d'affaires of the Embassy of the Libyan Arab
Republic in Copenhagen, and the letter of 8 May 1972 in addition was delivered
against acknowledgment of receipt to the Minister of Petroleum at Tripoli. No reply
was received from the Respondent, and at the meeting of the Tribunal on 4 July 1972,
the Sole Arbitrator decided that the arbitration would proceed in spite of the
Respondent's default but that copies of all correspondence and documents in the case
would be communicated to the Respondent, and this has been done throughout the
subsequent proceedings.
The Sole Arbitrator announced the appointment of Dr. J. Gillis Wetter as Secretary
and Professor Jan Sandstrom as Deputy Secretary to the Tribunal.
The Tribunal determined that it would have power to provide for such secretarial
and other assistance as it would deem necessary and further, with the consent of the
Claimant, decided that the language of the arbitration [9] would be English, that the
Tribunal should have power to appoint one or more experts, if necessary, and that the
name of the Tribunal would be The BP/Libya Concession Tribunal.
The Tribunal, with the consent of the Claimant, made various directions as to
financial matters, including a decision that the Parties should be jointly and severally
liable for making deposits as required by the Sole Arbitrator, but such deposits should,
as between the Parties, be borne in equal shares.
53 ILR 297 306
With respect to the further course of the proceedings, upon motion of the Claimant
for an order to divide the proceedings into a first and a second stage, the Tribunal
decided that the Claimant within six weeks should submit a memorial setting forth its
views as to the seat of the Tribunal and presenting argument in support of its request
for a first, preliminary award.
The Claimant, on 8 August 1972, submitted a Memorial as directed by the Tribunal
at the Meeting on 4 July 1972.
In the Memorial of 8 August 1972, the Claimant requested that Copenhagen be
fixed as the place of arbitration and that the arbitration proceedings be divided into two
stages, viz., broadly speaking, a first stage to be concerned with the merits of the case,
and a second stage to be concerned with the assessment of damages.
In support of the latter request, the Claimant argued that the amount of damages
flowing from the alleged [10] breach by the Respondent of the concession agreement
was of the order of £240 million. The establishment of such a claim would call both for
a consideration of the rules relating to the assessment of damages and the application of
those rules to the facts of the present case. This would require examination of highly
technical matters in great detail, and the sheer size of the damages claimed would call
for the submission and scrutiny of a very large volume of material. Expert testimony
must be produced. The process of assessing damages therefore was bound to be lengthy,
and the Claimant believed that it would assist the course of relations between the
Parties if a decision on the merits of the case were not delayed until the necessarily
extended question of assessing the damages was answered. The arbitration process thus
could serve an additional function in the resolution of the differences between the
Parties.
Two copies of the Memorial of 8 August 1972 were sent with a letter dated 14
August 1972 to the Minister of Petroleum at Tripoli and delivered against
acknowledgment of receipt with an invitation to submit the Respondent's comments
within four weeks of receipt.
No reply having been received from the Respondent, the Tribunal, by letters of 19
September 1972, invited both Parties to attend a meeting in Gothenburg on 4 October
1972. The letter to the Respondent was addressed and delivered against
acknowledgment of receipt to the Minister of Petroleum at Tripoli.
[11] The Respondent failed to appear at the meeting of the Tribunal on 4 October
1972 which was thus held in the presence of the Claimant alone.
The Tribunal, having heard the Claimant, made the following Order:
307 53 ILR 297
Upon application of the Claimant by letter and cable dated 22 December 1972, the
Tribunal on 9 January [12] 1973 ruled that the time limit for the submission of the
Claimant's Memorial stipulated in paragraph 3 of the Order cited above should be
extended until 31 March 1973.
On 28 March 1973, the Claimant submitted to the Tribunal twelve copies of the
Claimant's Memorial, divided into two printed volumes (Part One, stating the facts and
reproducing in 34 Annexes certain documents adduced in evidence, and Part Two,
devoted to an exposition of the Claimant's argument and containing also an opinion of
Professor Mohamed A. Omar).
Two copies of the Memorial of the Claimant were sent by the Tribunal with a
covering letter dated 2 April 1973 to the Minister of Petroleum at Tripoli and were
delivered against acknowledgment of receipt at the Embassy of the Libyan Arab
Republic at Copenhagen. The letter stated, with reference to paragraph 5 of the
Minutes of the meeting of the Tribunal on 4 October 1972, cited above, that the
Respondent was invited to inform the Tribunal on or before 15 May 1973 whether it
proposed to file a Counter-Memorial in reply to the Claimant's Memorial and, if so,
how long a period of time it would require for the preparation and submission thereof.
No reply has been received to the letter of 2 April 1973.
By letter of 21 May 1973 to both Parties, the Tribunal recorded the
fact that no reply had been received from the Respondent within the
prescribed time limit and [13] advised the Parties that the
53 ILR 297 308
Tribunal was preparing questions to the Claimant. By letter of 6 July 1973, the
Tribunal directed 16 questions to the Claimant with the request that written answers be
submitted by 1 August 1973, and such replies, dated 30 July 1973, were duly received.
By letters dated 6 August 1973, both Parties were invited to attend a meeting in
Copenhagen on 20 September 1973. The Respondent failed to appear at the meeting of
the Tribunal, which was held on such date in the premises of Østre Landsret (the Court
of Appeal for Eastern Denmark) in the presence of the Claimant alone. In the course of
it, the Tribunal sought and received from the Claimant orally certain clarifications
respecting the matters dealt with in the Tribunal's questions of 6 July 1973 and
otherwise. At the conclusion of the meeting, the case was declared closed for purposes
of the present, first stage of the proceedings.
sovereign power, the Tribunal is unable to hold that arbitral proceedings to which a sovereign
State is a Party could be subject to the Law of another State. Any interference by the latter
State would constitute an infringement of the prerogatives of the State which is a Party to the
arbitration. This would render illusory the award given in such circumstances. For these
reasons, the Tribunal finds that the Law of Geneva cannot be applied to the present
arbitration.
It follows that the arbitration, as such, can only be governed by International Law, since the
Parties have clearly expressed their common intention that it should not be governed by the
Law of Saudi Arabia, and since there is no ground for the application of the American Law of
the other Party. This is not only because the seat of the Tribunal is not in the United States,
but also because of the principle of complete equality of the Parties in the proceedings before
the arbitrators.
(Cited from the privately printed edition of the Award, p. 47, cf. 27 International Law Reports
(1963) p. 117, at pp. 155–156.)
The Tribunal cannot share the view that the application of municipal procedural law
to an international arbitration like the present one would infringe upon such
prerogatives as a State party to the proceedings may have by virtue of its sovereign
status. Within the limits of international law, the judicial or executive authorities in
each jurisdiction do, as a matter both of fact and of law, impose limitations on the
sovereign immunity of other States within such jurisdictions. Clearly, in some legal
systems the degree of control exercised by the courts over arbitral proceedings is greater
than in others, and at times extensive. By providing for arbitration as an exclusive
mechanism for [16] resolving contractual disputes, the parties to an agreement, even if
one of them is a State, must, however, be presumed to have intended to create an
effective remedy. The effectiveness of an arbitral award that lacks nationality—which it
may if the law of the arbitration is international law—generally is smaller than that of
an award founded on the procedural law of a specific legal system and partaking of its
nationality. Moreover, even where the arbitrators do, as the Tribunal does in this
instance, have full authority to determine the procedural law of the arbitration, the
attachment to a developed legal system is both convenient and constructive.
The Tribunal has fixed Copenhagen as its seat. For the reasons stated in
the foregoing, and having particular regard to the wide scope of freedom
and independence enjoyed by arbitration tribunals under Danish law, the
Tribunal considers that the procedural law of the arbitration is Danish law.
The Tribunal is not competent to establish conclusively the nationality of its
Award, for this can only be decided by the courts of Denmark and of other
jurisdictions in which enforcement of the Award may be sought. However,
the Tribunal deems this Award to be Danish, and the proceedings have
53 ILR 297 310
been conducted in a manner designed to be consistent with this view and intent.
This holding of the Tribunal is supported by practice in arbitrations between States
and aliens. Thus, both Judge Python in the Alsing case (Alsing Trading Co. v. Greece,
1954)[1] and Judge Cavin in the Sapphire case [17] (Sapphire International Petroleum
[2]
Ltd. v. The National Iranian Oil Co., 1963) held that the relevant procedural law was
the law of the seat of the arbitration. Judge Python, acting as Umpire, who rendered his
award prior to the adoption of the agreement on arbitration procedure among certain
Swiss cantons called the “Concordat sur l'arbitrage” of 27 March 1969, referred to the
fact that, according to the terms of Article 2 of the Geneva Protocol Relating to
Arbitration Clauses of 24 September 1923, the arbitration procedure, including the
constitution of the arbitration tribunal, is governed by the will of the parties and by the
law of the State in whose territory the arbitration takes place. According to the latter
rule, the Code of Civil Procedure of the Canton of Vaud would apply, as the arbitrator
sat at Lausanne. However, in accordance with the Protocol, the territorial law applied
only in a subsidiary fashion, in the absence of provision made by the parties or the
arbitrators appointed by them. Accordingly Judge Python held that the rules of
procedure agreed upon by the parties were the only valid ones in the case, as indeed in
international arbitrations under the Protocol even the mandatory provisions of the
internal law must give way to the will of the parties. As for the procedure applicable to
the inquiry and to the decision, the Umpire, exercising the power conferred upon him
by the parties and, in view of the fact that the case fell within his exclusive competence,
and that he was a Swiss Federal judge exercising his powers in Switzerland, decided to
apply the Swiss Federal [18] law of civil procedure to all questions not governed by the
rules agreed by the parties. (See the unprinted Award, pp. 34–35; cf. Schwebel, “The
Alsing Case”, 8 International and Comparative Law Quarterly (1959), p. 320, at p. 328.)
Judge Cavin considered it unavoidable that a specific procedural law should apply to
the proceedings but that the parties were free to elect domicile for the arbitration. If
they had agreed to confer upon the arbitrator the right to choose the seat of the
tribunal, they had impliedly submitted themselves to the procedural law of the State
decided by the arbitrator to be the seat. Judge Cavin implicitly assumed that the law of
the seat of the arbitration would then apply, and he went on to state that even if the will
of the parties were disregarded, the rule was that an arbitration is subject to the judicial
sovereignty of the State where the proceedings take place:
En l'espèce, par leur convention les parties ont laissé l'arbitre libre de déterminer le siège de
l'arbitrage, faute d'accord entre elles. Acceptant ainsi d'avance le siège tel qu'il a été fixé par
l'arbitre, qui a choisi par délégation de la volonté des parties, les contractants ont pris
l'engagement de se soumettre à la loi de procédure qui résulte de ce choix … Si même cette
interprétation de la volonté des parties était rejetée, la règie est qu'à defaut d'accord des parties,
l'arbitrage est soumis à la souveraineté judiciaire du siége de l'arbitrage, au lieu où se déroule
l'instance.
(Quoted from the unprinted Award, pp. 69–70;cf., 35 International Law Reports (1967), p.
136, at p. 169.)
It may be mentioned in this context that the Tribunal has satisfied itself as to the
conformity with Danish law of a decision made by the Tribunal at an earlier stage in
the proceedings, viz. the Order of 4 July 1972 [19] cited in Part II above, to the effect
that the arbitration proceedings be divided into two stages, the first dealing with the
merits of the claim and the second with the assessment of possible damages. The
Danish statute on procedure (retsplejeloven) provides that the court at its discretion may
render interim or partial judgments. It may also render declaratory judgments. The
competence of an arbitral tribunal to render interim, partial or declaratory awards
cannot under Danish law be less than that of a court of law.
Briefly, the general principle of Danish procedural law on the point is:
In other words, the principle of Section 341 of the Procedural Code is that the court will base
its judgment on the plaintiff's allegations of fact but will decide independently what legal
consequences follow from those allegations. (Hurwitz, ibid.)
The leading authority on Danish arbitral law, Dr. Bernt Hjejle, has expressed the
applicable principle in the following manner:
[21] However, in contradistinction to ordinary court procedure, the arbitrator in my opinion
must be allowed greater flexibility in that he should hardly be confined to the claimant's
statement of the facts but might check it and, if he finds it to be at variance with the actual
circumstances, base his award on the latter. Unlike a court of law, the arbitrator is not bound
by a statutory provision—which, in turn, to a certain extent has to be seen in its historical
context—but is absolutely free as regards his appraisal and consequently also with respect to
estimating how far he is willing, without more, to base his decision on the claimant's statement
of facts or subject the latter to a critical investigation. (Hjejle, op. cit., p. 135.)
The committee which prepared the Danish arbitration statute of 24 May 1972
concurred in the opinion of Dr. Hjejle, and stated:
It is the opinion of the Committee that the power, recognised in this country, of the arbitrators
in each instance to decide in their discretion what the consequences should be of the non-
appearance of a party, constitutes a satisfactory solution and that no statutory provisions are
needed. (Betaenkning, cit. supra, p. 28.)
The jurisdiction of the Tribunal, as defined in Clause 28, and the law applicable to
the proceedings necessarily confine its task to a consideration of the claims and
submissions formulated by the Claimant, and the Award therefore rules exclusively on
them.
The facts deemed relevant and taken as established by the Tribunal have been
gathered from evidence produced by the Claimant alone. With respect to certain facts
the Tribunal has sought and received from the Claimant the submission of additional
313 53 ILR 297
documentary evidence and explanations. The Tribunal deeply regrets the absence of
further elucidation on the part of the Respondent.
[22] With respect to the analysis of facts and their legal implications the Tribunal has
had the benefit of argument presented by the Claimant alone. However, the Tribunal
has felt both entitled and compelled to undertake an independent examination of the
legal issues deemed relevant by it, and to engage in considerable legal research going
beyond the confines of the materials relied upon by the Claimant. The conclusions in
the Award therefore are based on a broader consideration of the issues than that
permitted by the format of the Claimant's argument in support of its claims. Thus, the
Tribunal to the greatest extent possible has endeavoured to eliminate any inherent
adverse effects for the Respondent of its decision not to appear as a party in the
proceedings.
[23] PART IV
THE FACTS
1. The Nationalisation
On the basis of a contractual relationship with the Respondent, which will be
explained and analysed in detail in Section 2 of this Part IV, the Claimant over a period
of twelve years made substantial investments in Libya and operated a major enterprise
in that country for the extraction, processing, and export of petroleum. The Claimant
indirectly is and has at all times been wholly owned by the British Petroleum Company
Limited, an English public company, between 48 and 49 per cent of whose ordinary
share capital is held by the British Government. The Claimant was incorporated in
England on 28 January 1938 and its head office is at Britannic House, Moor Lane,
London E.C.2. All the statutory and other records are maintained at that address. The
board consists of nine persons all of whom are British subjects resident in England. The
whole of the administration, management and control of the Claimant's affairs is
exercised by the board in London. Activities overseas are carried on through local
representatives appointed and supervised by and subject to the directions of the board
in London.
On 7 December 1971, the Respondent passed the BP Nationalisation Law which
nationalised the operations of the Claimant in Concession 65. The BP Nationalisation
[24] Law claimed to restore to the State and then to transfer to a new company, the
Arabian Gulf Exploration Company, ownership of all properties, rights, assets and
shares relating to the above-mentioned operations.
53 ILR 297 314
The BP Nationalisation Law provided that the State should pay compensation to the
Claimant. The amount of compensation was to be determined by a committee to be
established by the Minister of Petroleum. The decision of the committee was to be
documented and final, to admit of no appeal by any means, and to be communicated to
the Minister of Petroleum who was to notify the Claimant of it within thirty days of its
issue.
In the Claimant's submission, the BP Nationalisation Law was a measure of a unique
character in that no similar step was taken against any other concessionaire of the
Government or against other concessions owned by the Claimant. The Claimant states
that to the best of its knowledge it believes that some 133 concessions had been granted
to American, British, German, Italian and French companies prior to 7 December
1971; that in 1971 there were some 91 concessions in existence and that then and as of
the date of the Claimant's submissions there were concessionaires operating in Libya
who were of American, British, German, Italian and French nationality. Although the
Claimant gave notice of surrender of four of its remaining six concessions on 18
December 1971, it continues to hold Concessions 80 and 81.
[25] In the aspects unrelated to compensation, the BP Nationalisation Law was
rapidly implemented. The Claimant's operations in Concession 65 were brought to a
complete halt: its staff were immediately excluded from its premises and from its
production and transportation facilities. These were then taken over by the Arabian
Gulf Exploration Company.
No representative of the Claimant attended such meeting but a letter was sent to the Minister of
Petroleum, referring to the cable and saying, “As you know BP is willing to attempt to resolve the
315 53 ILR 297
The Government of Great Britain has violated the provisions of the very treaties it had itself
imposed upon the Sheikhdoms of the Arabian Gulf decades ago. The treaties imposed
occupation and colonialism. However, they also provided for the protection of the territorial
integrity of those Sheikhdoms and their islands. For many decades Great Britain has exploited
all the provisions of those treaties to its own advantage and until now it has readily exploited
the natural wealth of the Sheikhdoms. On the one occasion that Great Britain was called upon
to apply the protection provision, it failed miserably and intentionally, reflecting the true
nature by which the world has known it for centuries: ‘divide and rule’, trickery, treachery and
butchery.
A glance through past centuries gives proof of this. Indeed, hardly any major conflict
or turmoil the modern world has known has not been the
53 ILR 297 316
creation of Britain or its like-minded States, either directly or indirectly. And in the present
instance of the Iranian aggression and occupation of the Arab islands Britain has been faithful
to its nature and tradition. Has not Great Britain done the same in Palestine, although on a
larger scale?
Great Britain violated the treaties that it had itself imposed on the Sheikhdoms of the Arabian
Gulf. It violated the principles of the Charter of the United Nations.
(United Nations Security Council, Provisional Verbatim Record of the Sixteen Hundred and Tenth
Meeting, S/PV 1610, p. 93.)
The reaction of the British Government during December, 1971 to the actions of the
Respondent may be summarised as follows.
On December 1971, the Minister of State for Foreign and Commonwealth Affairs
said in reply to a question in the House of Commons:
Obviously, I shall wish to protest in the strongest terms when I know precisely what to protest
about. I have to ascertain the facts first. The important thing is to get the facts and then to
decide on action in relation to them. At present we have only hearsay evidence but, in so far as
any question of nationalisation or expropriation is concerned, we have never said that it is our
view that countries are not entitled to nationalise—of course they can nationalise—but we do
expect prompt and adequate compensation when that occurs. This will be a matter which we
shall certainly want to have in the forefront of our minds.
(House of Commons, Official Report, Parliamentary Debates (Hansard), Vol. 827, No. 27,
Wednesday, 8 December 1971, Columns 1299–1302.)
[29] On 23 December 1971, a note of protest was handed to the Ambassador of the
Libyan Arab Republic in London, reading as follows:
Her Britannic Majesty's Government present their compliments to the Government of the
Libyan Arab Republic and have the honour to refer to the request, made to the Libyan
Ambassador on 8 December 1971 by the Minister of State at the Foreign and Commonwealth
Office and subsequently to the Libyan Government by Her Britannic Majesty's Embassy in
Tripoli, for an explanation of the action of the Libyan Government in nationalising the assets
of British Petroleum's production operation in Libya.
Her Britannic Majesty's Government note with regret that the Libyan Government have not
yet provided the explanation requested. In the absence of any such explanation and in the light
of the public statements of the Libyan Government, Her Majesty's Government are bound to
conclude that the measures in question amount to a breach of international law and are invalid.
An act of nationalisation is not legitimate in international law unless it satisfies the following
requirements:—
(i) it must be for a public purpose related to the internal needs of the taking State; and
(ii) it must be followed by the payment of prompt, adequate and effective compensation.
Nationalisation measures which are arbitrary or discriminatory or which are motivated by
considerations of a political nature unrelated to the internal well being of the taking State are,
by a reference to those principles, illegal and invalid.
Her Majesty's Government must, therefore, call upon the Libyan Government to act in
accordance with the established rules of international law and make reparation to British
Petroleum Exploration (Libya) Limited, either by restoring the Company to its original
position in accordance with the Concession No. 65 or by payment of full damages for the
wrong done to the Company.
[30] The Respondent did not furnish any reply to the note of the British
Government.
The reaction of the Claimant to the nationalisation has been described above in Part
I with respect to the institution and conduct of the present arbitration proceedings.
Certain further steps taken by the Claimant, and evidenced in letters sent to the
Minister of Petroleum, may be mentioned in this context.
On 30 December 1971, by a letter addressed to the Minister of Petroleum, Tripoli,
the Claimant informed him that in the ordinary course of events the Claimant would
have paid to the Respondent on that date in respect of Concession 65 the sum of
£2,882,955 by way of royalty on crude oil produced and tax and supplemental payment
53 ILR 297 318
on crude oil exported by the Claimant during the fourth quarter of 1971. The
Claimant stated that in the circumstances it was withholding this payment, but that it
was lodging the sum “in a special account … where the monies will be held pending the
outcome of the arbitral proceedings and against such sums as are due from the
Government to the Company by way of damages”..
By a letter dated 17 January 1972, addressed to the Minister of Petroleum, Tripoli,
the Claimant placed on record the fact that the introduction and implementation
within Libya of the BP Nationalisation Law in violation of the Claimant's rights under
Concession 65 had compelled the Claimant to discontinue [31] its operations under
the concession, to withdraw its staff and to surrender to the Libyan authorities its
offices, installations, equipment, oil stocks and other assets in Libya. The Claimant also
pointed out that these steps were taken under duress and could not prejudice the
Claimant's legal position and in particular could not prevent the vesting in the
Claimant of title to its share of oil extracted from the area of Concession 65.
By a letter dated 28 January 1972, addressed to the Minister of Petroleum, the
Claimant informed him, in terms similar to its letter of 30 December 1972, that on 30
July 1972, £2,882,955 would, in the normal course of events, have fallen due for
payment to the Respondent on 30 January 1972, but that this sum would be lodged in
a special account in a London bank pending the outcome of the arbitral proceedings.
Similar letters relating to payments of £3,001,133 and £10,290,136 otherwise due
on 29 February and 30 April 1972 were addressed by the Claimant to the Minister of
Petroleum on 28 February and 28 April 1972, respectively.
The letter of 28 April 1972 stated that the amount in question was withheld by the
Claimant without being lodged in a bank account.
All sums above referred to, amounting in the aggregate to £19,057,179 are presently
withheld by the Claimant without being deposited in a special bank account.
[32] 2. The Contractual Relationship Between the Claimant and the Respondent
they may contain such minor non-discriminatory variations as may be required to meet
the circumstances of any particular case.“
On December 1957 the Commission granted a Deed of Concession, designated as
Concession 65, to Mr. Nelson Bunker Hunt, a citizen of the United States of America,
of Dallas, Texas, U.S.A. (the “Hunt Concession”). It was substantially in the form set
out in the Second Schedule of the Libyan Petroleum Law of 1955.
By Clause 1 of the Deed of Concession, Mr. Hunt was granted the exclusive right for
50 years to search for and extract petroleum within a designated area, and to take away
and dispose of the same. The area was marked out on an annexed map and originally
covered 32,944 sq.kms. However, pursuant to Article 10 of the Libyan Petroleum Law
of 1955 and Clause 2 of the Deed of Concession, the area was progressively reduced by
surrender to 8,234 sq.kms. as at 7 December 1971.
[33] Clause 25 provided that, save in circumstances which do not apply in the
present case, the concession could only be assigned with the consent of the Commission
and subject to such conditions as the latter might deem appropriate.
Following discussions in early 1960, the Claimant and Mr. Hunt entered into an
agreement on 24 June 1960 consisting of a Memorandum and attachments in which it
was agreed, inter alia, that Mr. Hunt would assign to the Claimant an undivided one-
half interest in Concession 65. By a letter to the Commission dated 12 July 1960, Mr.
Hunt asked for formal approval of the assignment to the Claimant of an undivided one-
half interest in Concession 65. The Claimant wrote in similar terms to the Commission
in a letter of the same date. The first letter was accompanied by a draft Deed of
Assignment. After consultation with the Commission, an amended draft thereof was
presented to the Commission with a letter dated 17 August 1960 together with a
program for carrying out the terms of the concession.
On 9 September 1960 the Commission resolved to agree to the assignment and
informed the Claimant of its decision by a letter dated 11 September 1960. Its
resolution was approved by the Minister of National Economy on 28 September 1960
and a copy of its decision was sent to the Claimant on 2 October 1960.
On 10 November 1960, the arrangements between Mr. Hunt and the
Claimant were formally settled by [34] the signing of a Deed of Assignment in
the same terms as the draft presented to the Commission with the letter of 17
August 1960 by which Mr. Hunt assigned to the Claimant an undivided one-
half interest and title in Concession 65. In consideration of this assignment, the
Claimant agreed to undertake a work programme in which it would advance all
the costs. This programme was to include seismic surveys, the
53 ILR 297 320
have their production cut back under this Regulation prior to 7 December 1971. In
October, 1970 all the oil companies operating in Libya agreed to increase posted prices
with effect from 1 September 1970 and to a general increase in tax from 50 per cent to
55 per cent. Finally, on 18 October 1970 a Law Organising Petroleum Affairs was
issued which was concerned with governmental organisation.
The Hunt Concession granted the holder the exclusive right for a period of 50 years
within a defined area, inter alia, to search for and extract petroleum, to take it away by
pipeline or otherwise and to use, process, store, export and dispose of the same. For
such purpose, the holder had the right within the concession area to erect and maintain
any constructions, installations and works required for its activities and, outside the
concession area, to erect and operate transport, harbour and terminal facilities.
The assignment clause in the Deed of Concession (Clause 25) did forsesee an
assignment thereof “in whole or in part.”
As between the parties to the assignment, the Operating Agreement
established certain basic principles, [38] two of the most important of
which were, firstly, the designation of the Claimant as
53 ILR 297 322
Operator with exclusive rights to conduct, direct and have full control over all
operations in the concession area (Section 6), and, secondly, joint ownership (as to 50
per cent each) of all equipment and material, and all oil and gas produced in the
concession area (Section 2, and specific provisions in Section 10 (a) on extracted
petroleum, and in Section 21 on facilities, materials and equipment). In so far as the
Hunt Concession and the parties' activities thereunder gave rise to ownership of or
other rights of property in related physical installations in Libya, or petroleum extracted
from the concession area, neither party could exercise and dispose of such property
rights save in accordance with the terms and conditions of the agreement of 24 June
1960. The principal object of joint ownership, Concession 65, as granted by and
defined in the Deed of Concession, remained an integral, undivided whole.
It may be mentioned in this context that on 20 September 1973 the Claimant
submitted a letter from Mr. Nelson Bunker Hunt, dated 12 September 1973, in which
he declares that he has no objection to the present arbitration proceedings, including in
particular the requested Declaration No. 5.
As mentioned under subsection (a) of Section 2 above, the Libyan Royal Decree of
20 November 1965 stipulated that certain amendments to existing concessions might
be incorporated [39] therein by agreement, and the Claimant by a separate undertaking
submitted on 14 December 1965 consented to such modifications with respect to its
interests both under Concession 65 and under certain other concession agreements. An
agreement was concluded between the Respondent (acting through the Minister of
Petroleum Affairs in the name of the Government of Libya) and the Claimant, dated 20
January 1966 and entitled “Agreement for Amendment of Petroleum Concession No.
34, 36, 37, 63, 64, 80, 81, 65”. This agreement was executed on a standardised form
and mainly incorporated certain fiscal provisions which were more onerous to the
concessionaire than the conditions previously applicable. It included as Clause 28 the
arbitration clause quoted in Part I above and, as Clause 16, the following provision:
1. The Government of Libya will take all the steps necessary to ensure that the Company
enjoys all the rights conferred by this Concession. The contractual rights expressly created by
this concession shall not be altered except by mutual consent of the parties.
2. This Concession shall throughout the period of its validity be construed in accordance with
the Petroleum Law and the Regulations in force on the date of execution of the agreement of
amendment by which this paragraph 2 was incorporated into this concession agreement. Any
amendment to or repeal of such Regulations shall not affect the contractual rights of the
Company without its consent.
323 53 ILR 297
[40] PART V
THE CLAIMS
As stated in Part I above, the Tribunal at the request of the Claimant has decided to
divide the proceedings into two stages. The present stage concerns what the Claimant
refers to as the merits of the claim. The Claimant is asking the Tribunal to render a
declaratory Award dealing with certain specific questions, viz. to make the following
declarations:
(1) The Libyan Nationalisation Law of 7 December 1971 and the subsequent implementation
thereof were each a breach of the obligations of the Libyan Government owed to the Claimant
under the Concession Agreement and so remain;
(2) The said breaches were and are ineffective to terminate the Concession Agreement, which
remains in law valid and subsisting;
(3) The Claimant is entitled to elect, at any time so long as the Respondent's breach continues,
to treat the Concession Agreement as at an end;
(4) The Claimant is entitled to be restored to the full enjoyment of its rights under the
Concession Agreement;
(5) The Claimant is the owner of its share of any crude oil extracted from the area of the
Concession Agreement after as well as before 7 December 1971 and of all installations and
other physical assets, and the Libyan Government has no right to any such oil, installations or
physical assets, which it can enjoy or transfer to any third party;
(6) Performance of the Claimant's obligations under the Concession Agreement is suspended
for so long as the Libyan Government remains in breach thereof; and
[41] The Claimant is entitled to damages in respect of the interference by the Libyan
Government with the Claimant's enjoyment of its rights under the Concession Agreement. If
the Claimant does not exercise its rights under Declaration (3) above, then it is entitled to
damages accruing up to the date of the final award herein. If the Claimant does exercise the
rights under Declaration (3) above, it is entitled to all damages arising from the wrongful act of
the Libyan Government.
(8) The Claimant further respectfully requests the Sole Arbitrator to reserve for a subsequent
stage of the proceedings the assessment of the damages due under Declaration (7) above.
The Claimant also asks the Tribunal to give directions in principle as to costs.
53 ILR 297 324
[42] PART VI
THE ISSUES
The declarations which the Claimant asks the Tribunal to make raise certain
principal issues. This Part will identify these issues and state the Claimant's submissions
regarding them.
2. Applicable Law
The second issue is what law applies to the relationship between the Claimant and
the Respondent. It will be recalled that paragraph 7 of Clause 28 of the BP Concession
contains an express provision on the law governing the concession. The Claimant
argues that Libyan law has been excluded as the sole governing law and that the law
governing the BP Concession is public international law. Alternatively, the BP
Concession itself constitutes the sole source of law controlling the relationship between
the Parties. Orally, the Claimant submits that it does not place emphasis on the word
“sole”. In the further alternative the Claimant submits that the legal position of the
parties falls to be decided by reference to “the general principles of law”.
325 53 ILR 297
3. Breach of Contract
The third issue is whether the nationalisation by the Respondent constituted a breach
of the contractual relationship allegedly existing between the Claimant and the
Respondent. The Claimant submits that the action of the Respondent was a
fundamental breach or repudiation of the concession agreement and that there was no
legal justification for it.
to damages flowing from the specific breaches of contract (damnum emergens) but also
damages for loss of the benefit of the contract as a whole (lucrum cessans).
1. Introduction
The Tribunal will now analyse the issues which arise in the arbitration at its present
stage.
It is necessary as an initial step to treat in conjunction certain fundamental questions
which are inherent in the two first issues defined in Part VI above, and which relate to
the nature of the BP Concession and the law applicable to it.
In contradistinction to all national courts, the ad hoc international arbitral tribunal
created under an agreement between a State and an alien, such as the present Tribunal,
at least initially has no lex fori which, in the form of conflicts of law rules or otherwise,
provides it with the framework of an established legal system under which it is
constituted and to which it may have ultimate resort. With respect to the law of the
arbitration, the attachment to a designated national jurisdiction is restricted to what,
broadly speaking, constitute procedural matters and does not extend to the legal issues
of substance. It is erroneous to assume, as has been done doctrinally, on the basis of the
territorial sovereignty of the State where the physical seat of an international arbitral
tribunal is located, that the lex arbitri necessarily governs the [47] applicable conflicts of
law rules. (See in this connection the award of 1964 in Case No. 1250 of the
International Chamber of Commerce, in which Professor Henry Batiffol presided as
chairman.) Even less does it necessarily constitute the proper law of the contract.
Instead, if the parties to the agreement have not provided otherwise, such an arbitral
tribunal is at liberty to choose the conflicts of law rules that it deems applicable, having
regard to all the circumstances of the case. (Cf. Article VII of the European Convention
on International Commercial Arbitration of 1961, U.N. Economic Commission for
Europe, E/ECE/423; E/ECE/Trade 48.)
The Tribunal deems Danish conflicts of law rules—which not only are those of the
lex arbitri but by virtue of not containing any relevant restrictive rules provide a wide
leeway for the free exercise of party autonomy—to be applicable in the present case.
This in the circumstances seems to be the most natural solution.
327 53 ILR 297
The contract containing the arbitration clause from which the Tribunal derives its
jurisdiction is an elaborate document carefully drafted and conceived of by the Parties
as a legal instrument binding upon them. Therefore primary reference must be made to
that instrument itself in determining the law which governs the agreement.
As stated earlier, the Tribunal deems Danish conflicts of law rules to be applicable.
Having regard to them, the Tribunal accepts the distinct provisions of paragraph 7 of
Clause 28 of the BP Concession as conclusive with respect to the issue of which legal
system governs the agreement, including the remedies available in the event of breach.
[48] The paragraph is analysed in detail in Section 3 below.
3. Applicable Law
Paragraph 7 of Clause 28 of the BP Concession, quoted in Part I above, stipulates
which law is to govern the agreement. While the provision generates practical
difficulties in its implementation, it offers guidance in a negative sense by excluding the
relevance of any single municipal legal system as such. To the extent possible, the
Tribunal will apply the clause according to its clear and apparent meaning. Natural as
this would be in any event, such an interpretation is the more compelling as the
contractual document is of a standardised type prescribed by the Respondent. The
governing law clause moreover was the final product of successive changes made in the
Libyan petroleum legislation in the decade between 1955 and 1965 by which the
relevance of Libyan law was progressively reduced.
[49] In paragraph 7 of Clause 28, reference is made to the principles of law of Libya
common to the principles of international law, and only if such common principles do
not exist with respect to a particular matter, to the general principles of law. The
Claimant argues, in the first of three alternative submissions, that international law
alone is applicable.
53 ILR 297 328
This reasoning is clearly incomplete since it entirely leaves out of the picture the
direction which follows from paragraph 7 of Clause 28 that conduct etc. in the last
analysis should be tested by reference to the general principles of law. It is not correct to
say that “a principle must be supported by both Libyan law and international law [in
order to be] justifiable under the Concession” and that conduct “is justifiable only if
principles of both systems of law—Libyan and international—support it”. The [50]
principle may still be acceptable, and the conduct justifiable, if supported by the general
principles of law. To take a few examples, one system may prescribe that payments shall
be made in one currency and the other system that payment shall be made in a different
currency. Clearly, in such a case, under paragraph 7 of Clause 28 the general principles
of law must provide the answer to the question what currency is to be used. If one
system imposes automatic, obligatory limitation after the lapse of a given period, but
the other does not, again the general principles of law will be resorted to for the purpose
of determining whether a claim is barred by the lapse of time. Similarly, if one system
contains the principle that any default by a debtor entitles a creditor to accelerate
payment of principal and interest with immediate effect, but the other system does not
offer the creditor such a remedy, the general principles of law will govern the issue
respecting the availability of that remedy. And so the situation must be also in regard to
breach of contract. If a particular action by a party amounts to breach of contract under
one system but not under the other, the issue is one which can only be decided by
reference to the general principles of law. Thus, the first part of the Claimant's
argument must be rejected. It is not sufficient for the Claimant to show that the
conduct of the Respondent is a breach of international law as a basis for maintaining a
claim based on breach of contract. In the event that international law and Libyan law
conflict on that issue, [51] the question is to be resolved by the application of the
general principles of law.
329 53 ILR 297
(b) Secondly, the Claimant argues that since the Parties have expressly excluded the
direct and sole application of Libyan law, but have made reference to the general
principles of law, and since “a” system must govern, “the only system that is left is
public international law”.
The Tribunal cannot accept the submission that public international law applies, for
paragraph 7 of Clause 28 does not so stipulate. Nor does the BP Concession itself
constitute the sole source of law controlling the relationship between the Parties. The
governing system of law is what that clause expressly provides, viz. in the absence of
principles common to the law of Libya and international law, the general principles of
law, including such of those principles as may have been applied by international
tribunals.
4. Breach of Contract
No elaborate reasons are required to resolve the third issue in this case. The BP
Nationalisation Law, and the actions taken thereunder by the Respondent, do
constitute a fundamental breach of the BP Concession as they amount to a total
repudiation of the agreement and the obligations of the Respondent thereunder, and,
on the basis of rules of applicable systems of law too elementary and voluminous to
require or permit citation, the Tribunal so holds. Further, the taking by the Respondent
of the property, rights [52] and interests of the Claimant clearly violates public
international law as it was made for purely extraneous political reasons and was arbitrary
and discriminatory in character. Nearly two years have now passed since the
nationalisation, and the fact that no offer of compensation has been made indicates that
the taking was also confiscatory.
(iii) Is the Claimant entitled to damages, and how should they be determined?
A reference also should be made to the further statements by Professor Omar in his
said opinion which are quoted in Section 1 of Part VI above and from which it appears
that if the Government unilaterally changes or terminates a concession contract, the
concessionaire [57] under Libyan law is entitled to obtain damages. However, Professor
Omar makes no reference in this context to the availability to the concessionaire of the
remedy of specific performance or restitutio in integrum against the State.
The Tribunal finds that no certain conclusions as to the position of Libyan law can
be drawn on the material available, nor is it necessary to pursue the research on Libyan
law further on account of the conclusions presented below as to public international
law, which is a second necessary link in the argument.
The Convention further stipulates in Article 42 that the termination of a treaty, its
denunciation or the [58] withdrawal of a party, may take place only as a result of the
application of the provisions of the treaty or the Convention.
The Convention, however, conspicuously lacks any rules on remedies. Therefore
customary international law, and particularly the case law of international tribunals,
must answer the question of what remedies are available without the benefit of
guidance from the Convention. It is true that there is a fleeting reference in Article
65, Paragraph 5, to a party “claiming performance of the treaty or
333 53 ILR 297
alleging its violation”, but in the context this cannot be construed as a considered
incorporation of specific performance as a remedy. The main rule in Article 65 of the
Convention is instead that in the event of disputes as to the validity or termination of a
treaty, the parties shall seek a solution through the means indicated in Article 33 of the
Charter of the United Nations.
The sole provision in the Convention which has a direct bearing on the issues dealt
with here is that contained in Article 60, Paragraph 1, which reads:
A material breach of a bilateral treaty by one of the parties entitles the other to invoke the
breach as a ground for terminating the treaty or suspending its operation in whole or in part.
The International Law Commission was of the unanimous opinion that a breach of a
treaty, regardless of how serious it is, does not ipso facto terminate the treaty and that a
State is not at liberty simply to state [59] that a breach of treaty has occurred and that
the treaty as a consequence is determined. (See the Report of the Chairman of the
Swedish Delegation to the Vienna Conference, Dr. Hans Blix: Kungliga
Utrikesdepartementet, Konferensen i Wien 1968 och 1969 angående traktaträtten; Den
svenska delegationens slutrapport, Stockholm, 1970 (cited below as “Swedish Report”), p.
223.) It would indeed appear singularly inconsistent to take a different position on the
effect of a breach of treaty as an opposite view would be tantamount to denying the
principle of pacta sunt servanda enshrined in Article 26. However, Article 60, while
implicitly resting on the proposition that a treaty continues in effect despite its
unilateral abrogation by one party, falls short of providing that the innocent party is
entitled in such a situation to demand specific performance or, as the case may be,
restitutio in integrum. Public international law outside the Convention thus must be
resorted to for determining the remedies available to the innocent party besides its right
under Article 60 to suspend its own performance, or terminate the treaty on account of
the other party's repudiation of it. The latter rule in the context should be understood
merely as authorising—and requiring—a formal declaration to the effect that
performance under the treaty by the party not in default will come to an end. It was
precisely this limited aspect of the provision which was subject to deliberations among
the members of the International Law [60] Commission. (See Swedish Report, pp. 223–
224.)
Lord McNair, writing in 1961, referring to the Harvard Research, and relying also
on Charlton v. Kelly (1913; 229 U.S. 447), expressed the rule later embodied in Article
60 in a somewhat more qualified form:
53 ILR 297 334
One point is clear: a breach by one party (including an unlawful denunciation) does not
automatically terminate the treaty, for the other party may prefer to maintain it in existence.
Viewed from one angle, the right of abrogation is a remedy which the party wronged may or
may not pursue. But he must make up his mind within a reasonable time; otherwise he will
lose his right to abrogate the treaty.
(McNair, The Law of Treaties, 1961, p. 553, cf. p. 571.)
As for the ultimate remedies available to the innocent party, Lord McNair states that
the International Court of Justice may be asked to issue a declaration that the wronged
party at its option may abrogate the treaty (adding that the “precise remedy obtainable
by means of arbitration depends upon the instrument providing for arbitration”), or to
award “reparation, which, according to the circumstances, may take the form of
restitution or indemnity” (ibid., p. 574). The latter statement is not expounded, nor is
authority cited for it except the Chorzów Factory cases which are discussed below.
(iii) Customary Public International Law and the Case Law of International Tribunals—
the Remedies of Specific Performance and Restitutio in Integrum
With regard to the question of the availability of the remedies of specific
performance and restitutio in integrum in customary international law, it is
important [61] at the outset to stress that the inquiry below will be
restricted to the general field of economic interests and especially to long-
term contracts of a commercial or industrial character and property and
other assets employed in industrial undertakings. The relevant issues may
be fundamentally different in other contexts, such as disputes concerning
sovereignty over territory. A decision by a tribunal with respect to the
alignment of a boundary between two States naturally implies that when
the judgment has become effective; the State which is in possession of
territory declared in the judgment to be the territory of the other State
must cede it. Thus the judgment can be characterised as decreeing
restitutio in integrum if the territory to be so ceded has been occupied by
the wrongful possessor in the near or distant past. If the decision of the
tribunal is based on a treaty, such restitution may be said to be of a
contractual nature. Every international decision on a boundary at least
impliedly presents this feature. The International Court of Justice in the
Temple of Preah Vihear (Merits) case expressly decided not only that the
temple in dispute was situated in territory under the sovereignty of
Cambodia but also held that Thailand was under an obligation to
withdraw any military or police forces or other guards or keepers stationed
by her at the temple or in its vicinity on Cambodian territory. The Court
went even further by ordering Thailand to restore to Cambodia any object
335 53 ILR 297
which Thai authorities might have removed from the temple or the temple area since
the date of the [62] occupation of the temple by Thailand in 1954. (Case concerning the
Temple of Preah Vihear (Cambodia v. Thailand) (Merits), Judgment of 15 June 1962: I.
C.J. Reports 1962, pp. 36–37.)[4] The restitution in kind ordered by the Court in this
instance, it may be noted, comprised not only the temple and the territory on which it
was situated but specific, unique works of art of religious significance.
If territory to a State always represents more than the economic market value of the
real estate there are other situations also in which restitution in kind from one State to
another of things appropriated in violation of an international obligation may be
indicated for particular reasons. This is why the limitation is made in the inquiry below
to cases and other materials relating to matters which in essence are of an economic
character, such as industrial enterprises and their like.
Professor Schwebel, addressing himself to the question whether specific performance
is, or should be, available to parties to a contract between a State and a foreign national,
concludes, de lege lata, that “the fact that specific performance normally is not afforded
against a state in the national sphere suggests that it normally will not be accorded in
the international sphere” (Schwebel, “Speculations on Specific Performance of a
Contract Between a State and a Foreign National” in The Rights and Duties of Private
Investors Abroad, 1965, p. 201, at p. 210). However, he continues:
[63] Good faith observance of international contracts imports performance of the terms of the
contract by both parties. Where there is a breach of contract, the remedy to repair it may be
specific performance—especially where it is the only remedy which can repair it effectively. If a
state, as is sometimes the case, lacks the capacity to pay the damages it would be obliged to pay
were monetary compensation required, it may be said that good faith requires the contract to
be performed specifically. (Schwebel, ibid., at pp. 209–210.)
Professor Jennings, citing the Cutting, Silesian Loans and Anglo-Iranian Oil Co. cases,
adds the thought that while it “is not easy to find an order for restitution in the reports
of tribunals”, one should “remember that the law is demonstrated as much by successful
negotiation on a basis of law as by the decisions of courts.” (Jennings, “Rules Governing
Contracts Between States and Foreign Nationals”, ibid., p. 123, at p. 136.)
It is difficult to state what the practice of States has been in diplomacy as such
practice is published [64] only sparsely.
Insofar as can be judged by American practice before World War II, the United
States have requested restitution in kind, particularly in cases of taking of property, and
insisted on specific performance by foreign States of undertakings made in contracts vis-
àvisa American nationals. However,
the choice of remedies has closely depended on the circumstances in each case, and the aim of
the State Department has invariably been the flexible and reasonable one of seeking to prevent
whatever government actions that might be prevented, or if that is too late, to obtain
reparation or compensation such as has seemed appropriate and effective in the circumstances
at hand.
(Wetter, “Diplomatic Assistance to Private Investment; A Study of the Theory and Practice of
the United States During the Twentieth Century”, 29 University of Chicago Law Review
[1962], p. 275, at p. 324.)
It is believed that the current practice of States exercising diplomatic protection of its
nationals in cases of expropriations or nationalisations—whether or not affecting
concessions—which have been fully implemented is to demand either simply
compensation (qualified as prompt, adequate and effective, or otherwise qualified) or
reparation in the form of restitution in kind, but in the latter case suggesting the
alternative remedy, exercisable at the option of the defaulting State, of making
reparation in the form of monetary compensation. This view seems to be confirmed by
the text of the so-called Hickenlooper Amendment to the United States Foreign
Assistance Act of 1962 which does not even mention restitution in kind. It is also
significant that the British Government took precisely this view in the Note of 23
December 1971 which has been quoted in full in Part IV above.
[65] It should be noted, however, that very recently a diplomatic action which may
be differently interpreted was taken by the United States Government. By a law of 11
June 1973, the Government of Libya nationalised the property, rights and interests of
the Nelson Bunker Hunt Oil Company in and relating to Concession 65. On 5 July
1973, the United States protested against this taking of the said property, rights and
interests in the following terms:
337 53 ILR 297
The United States Government has now had the opportunity to review the public statement
by the Chairman of the Revolutionary Command Council on June 11, 1973, and the official
commentary accompanying Law No. 42 of the same date. It is clear from those
pronouncements that the reasons for the action of the Libyan Arab Republic Government
against the rights and property of the Nelson Bunker Hunt Oil Company were political
reprisal against the United States Government and coercion against the economic interests of
certain other U.S. Nationals in Libya. Under established principles of international law,
measures taken against the rights and property of foreign nationals which are arbitrary,
discriminatory, or based on considerations of political reprisal and economic coercion are
invalid and not entitled to recognition by other states.
In these circumstances, the United States Government must protest the action in violation of
international law against the Nelson Bunker Hunt Oil Company, and it calls upon the Libyan
Arab Republic Government to take the necessary steps to rectify this situation and to discharge
its obligations under international law with respect to the Nelson Bunker Hunt Oil Company.
stated on the availability of that remedy therefore is obiter. The Court had held in an
earlier judgment that the expropriation by Poland [67] violated Article 6 and the
following Articles of the applicable so-called Geneva Convention. Having regard
thereto, Germany's principal final submission was that “the Polish Government is
under an obligation to make good the subsequent injury sustained by the aforesaid
Companies from July 3rd, 1922, until the date of the judgment sought” (ibid., p. 12).
It will be observed that what the Court established in the crucial passage of the
Judgment were “the principles which should serve to determine the amount of
compensation due for an act contrary to international law”, and it was in the course of
defining such principles that the Court made the following oft-quoted pronouncement:
The essential principle contained in the actual notion of an illegal act—a principle which
seems to be established by international practice and in particular by the decisions of arbitral
tribunals—is that reparation must, as far as possible, wipe out all the consequences of the
illegal act and reestablish the situation which would, in all probability, have existed if (hat act
had not been committed. Restitution in kind, or, if this is not possible, payment of a sum
corresponding to the value which a restitution in kind would bear; the award, if need be, of
damages for loss sustained which would not be covered by restitution in kind or payment in
place of it such are the principles which should serve to determine the amount of
[6]
compensation due for an act contrary to international law. (Ibid., p. 47.)
awarded, and the alternative claim for a prohibition of future exploitation also was
deemed incompatible therewith (ibid., p. 59).
If the limited purport of the holding in Judgment No. 13 is suggested by its express
wording, the history of the earlier phases of the Chorzów Factory proceedings before the
Court can leave no doubt about its meaning. It has further been contended that the
Court in Judgment No. 7 ordered restitution in kind of the disputed factory
(Personnaz, La Réparation du Préjudice en Droit International Public (1938), p. 85), but
in fact the Court in that Judgment decided only that the application of certain
provisions of the Polish law of 14 July 1920 as [69] to German nationals or companies
controlled by them constituted an infraction of the Geneva Convention and that the
attitude of the Polish Government towards the companies was not in conformity with
the provisions of the Convention. In the negotiations which followed between
Germany and Poland after the rendering of Judgment No. 7, Germany demanded “the
restoration of the factory as an industrial enterprise to the Bayerische”, to which request
Poland objected that “it was unable to comply for reasons of fact and of law” (Case
Concerning the Factory at Chórzow (Claim for Indemnity) (Jurisdiction), P.C.I.J., Ser. A,
No. 9, p. 16 (1927)). In the last note of the German Government which preceded the
claim that eventually resulted in Judgments Nos. 8 and 13, it was made clear that “the
German Government had abandoned its original claim for the restitution of the factory
[because] it had come to the conclusion that the Chorzów factory, in its present
condition, no longer corresponded to the factory as it was before the taking over in
1922 …” (ibid., p. 17).
There is a further aspect to the pronouncements of the Court in Judgment
No. 13. Already in the decision by which the Court assumed jurisdiction in
the case, i.e. Judgment No. 8 (P.C.I.J., Ser. A, No. 9 (1927)) the remark was
made that the Geneva Convention was “mainly designed to preserve the
status quo in Polish Upper Silesia and therefore that, whenever possible,
restitutio in pristinum is the natural redress of any violation of, or failure to
observe, the provisions therein contained” (ibid., p. 28). [70] In Judgment
No. 13 the same thought was reflected in the passage appearing on pp. 47–
48 which has been quoted above. The remedy of restitution in kind thus was
considered appropriate by the Court because of the coinciding circumstances
that the expropriation in question violated a treaty and that the main object
of that treaty was to preserve a status quo by prohibiting the expropriation of
certain property while allowing certain other such expropriations. For these
reasons the Chorzów Factory decisions may in fact more appropriately be
classified as belonging to the group of cases dealt with below
53 ILR 297 340
Roumania failed to do so within two months of the award, an indemnity (the amount
of which the tribunal, in the absence of argument, could not at that time assess) would
be due. In the treaty applied by the tribunal, the guilty State thus was given the option
to elect between effecting a restitution in kind and paying damages.
A compromis of the same character was that between the United States and Cuba in
the Walter Fletcher Smith claim (1929; II U.N.R.I.A.A., p. 913). The arbitrator, while
pronouncing that restitution of the properties in question, which it was open to him to
decree under one alternative heading, “would be not inappropriate”, decided, in the
“best interests of the parties, and of the public”, to award merely damages (ibid., p.
918).
Specific restitution of public and private property also has been prescribed in
numerous peace treaties, such as the Treaty of Versailles and the 1954 Paris Convention
on Settlement of Matters Arising out of the War and the Occupation.
A reference may be made in this context to the chapter on claims for restitution in
Wortley, Expropriation in Public International Law (1959), pp. 72–92.
International arbitral tribunals occasionally have been vested by treaty with
extraordinarily wide powers to order annulment of administrative decrees, and issue
[73] injunctions and make other dispositions. Such was the case, e.g., with respect to
the tribunals appointed to resolve disputes between the Algerian State and the
Compagnie de recherches et d'exploitation de pétrole au Sahara (CREPS) and that
between the Société francise pour la recherche et l'exploitation des pétroles en Algérie
(SOFREPAL) and the Société nationale de recherches et d'exploitation des pétroles en
Algérie (SN REPAL) (cf. Yearbook of the International Court of Justice, 1968–69, pp.
112–113). Both were constituted pursuant to the Franco-Algerian Agreement of 29
July 1965 concerning the settlement of questions relating to hydrocarbons and the
industrial development of Algeria (Journal Officiel de la République Française, 28
December 1965, p. 11793). According to Article 178 of the said Agreement, the
decisions of the arbitral tribunals are self-executory in the territories of France and
Algeria. The powers of the tribunals are defined in Article 174, which includes the
following provision:
[Le tribunal] peut prononcer l'annulation de toute mesure contraire au droit applicable et
ordonner la réparation des préjudices subis par l'octroi de dommages et intérêts ou tout autre
procédé qu'il juge approprié; il peut ordonner toute compensation entre les sommes mises à la
charge de l'une des parties par sa sentence et celles dont l'autre partie serait débitrice à l'égard
de la première.
Française, 31 August 1963, p. 7964) which formed part of the agreements [74]
implementing the so-called Evian Agreements. The interpretation has been placed on
Article 7 that the tribunal might “ordonner la réparation du dommage subi, soit en
allouant une indemnité, soit par tout autre moyen, éventuellement par la ‘restitutio in
integrum’”. (Vignes, “L'accord franco-algérien du 26 juin 1963 en matière d'arbitrage
pétrolier pour le respect des droits acquis au Sahara”, 10 Annuaire Français de Droit
International (1964), p. 383, at p. 392.)
The exceptional character of the treaty provisions now referred to is explained not
only by the nature of the agreements reached between the contracting States but by the
historical position of the concessionary enterprises which under a French statute of
1958 had had direct recourse to the Conseil d'Etat in disputes under the concessions
with the Government of France:
Cette clause est remarquable; elle ne peut s'expliquer que par les circonstances dans lesquelles
l'accord a été conclu et par le souci d'assurer aux sociétés pétrolières les mêmes garanties qui
leur étaient antérieurement conférées. Manifestement, référence est ainsi faite au Conseil d'Etat
Français, juge de l'excès de pouvoir (annulation) et juge en plein contentieux (indemnités).
Pourtant, les pouvoirs du Tribunal arbitral international sont encore plus larges: il peut
procéder par injonction à l'égard de la Puissance publique algérienne et ses sentences sont
directement exé cutoires contre elle. (Vignes, ibid., p. 393.)
The treaties and cases decided pursuant to them which have now been described have
the feature in common of resting upon the specific consent of all parties concerned,
[75] and they cannot therefore be regarded as expressive of principles of public
international law; nor are such treaties and compromis sufficiently numerous and
consistent to be regarded as evidence of a uniform State practice.
Remedies Invoked and Awarded in International Cases Concerning Contracts Between States and
Aliens
The awards of international tribunals in cases concerning concessions evidently are of
particular significance in the present proceedings.
Many such cases, especially where the origin of the dispute has been a repudiation or
termination of the contract by the State or by the concessionaire, are irrelevant to the inquiry
because of the fact that they have related solely to the composition or assessment of damages and
no claim for specific performance or restitutio in integrum has been advanced. Merely by way of
illustration, one may cite as cases falling under this category the awards in the Delagoa Bay
343 53 ILR 297
Railway case (1900; Whiteman, Damages in International Law, Vol. III, 1943, p. 1694),
the second arbitration between Duff Development Company, Limited and The
Government of Kelantan (1921, unpublished), the Palestine Railway case (1922; Wetter
and Schwebel, “Some Little-Known Cases on Concessions”, 40 British Yearbook of
International Law (1964), p. 183, at p. 222), the Lena Goldfields case (1930; The Times,
3 September 1930; 36 Cornell Law Quarterly [76] (1950), p. 41), the Warsaw Electricity
case (1932; III U.N.R.I.A.A., p. 1679), Losinger et Cie. S.A. v. the Government of
Yugoslavia (1934; reproduced in P.C.I.J., Ser. C, No. 78, p. 54), and the Sapphire case
(1963; cited in Part III above). The majority of concession cases decided by claims
commissions, and particularly the Venezuelan and Mexican claims commissions, also
relate solely or predominantly to the payment of compensation on the basis of the
applicable treaty provisions.
In another series of cases, the tribunals have been asked to tender declaratory awards,
and in these arbitrations both parties to a contract have defined the issue as being
whether a particular clause is to be interpreted in one way or another, or whether a
particular action or conduct by one of the parties would or would not be permissible
under the agreement. The most explicit instances are the following arbitrations:
Petroleum Development (Qatar) Ltd. v. Ruler of Qatar (1950; 18 International Law
Reports, p. 161), Petroleum Development Ltd. v. Sheikh of Abu Dhabi (1951; 18
International Law Reports, p. 144), and the Aramco case (cited in Part III above).
[77] The Abu Dhabi and Qatar awards established essentially, in the form of
declaratory awards, that the subsoil underneath the territorial waters was included in the
concession areas but that the contiguous continental shelves were not. In the Aramco
case, it was held, basically, that the agreement between Mr. Onassis and Saudi Arabia
was “in conflict with the Aramco Concession Agreement and is not effective against
Aramco” (quoted from the privately printed edition of the Award, p. 127).
In some instances, the tribunals have passed upon the validity as such of a concession
instrument. Thus, the Permanent Court of International Justice considered the
concessions of Mr. Mavrommatis valid in the Mavrommatis Jerusalem Concessions case
(P.C.I.J., Ser. A, No. 5, p. 31), but the Court took pains to point out that this issue was
decided as a preliminary question only (ibid., p. 29); the decision also must be
considered in the light of the related pleading that the concessions were invalid ab initio
on account of Mr. Mavrommatis's nationality. The tribunal in the Société Rialet v.
Government of Ethiopia case (1929; 8 Recueil des Décisions des Tribunaux Arbitraux
Mixtes Institués par les Traités de Paix, 1929), at the request of the company declared the
contracts at issue rescinded.
53 ILR 297 344
[78] Some of the cases arising under a Greek utility concession of 1935 (Wetter and
Schwebel, op. cit., p. 194) go further than the declarations described in the Aramco
group of cases, and the awards sometimes establish in extensive detail the precise rights
and obligations of the parties in specific terms. The Beyrouth Water case (1953;
reproduced in I.C.J. Pleadings, “Electricité de Beyrouth” Company case (France v.
Lebanon), 1954, p. 423) is an illustration of an arbitration where the tribunal not only
affirmed the validity and binding force of the contractual undertakings but ruled upon
a large number of specific declarations requested by each of the parties.
In this context, reference may be made to the claims of France in the Case Concerning
the Compagnie du Port, des Quais et des Entrepôts de Beyrouth and the Société Radio-
Orient (France v. Lebanon, I.C.J. Pleadings). Lebanon had imposed taxes on the port
company in violation of the tax exemption granted to the company in its concession,
and had refused to arbitrate the resulting dispute, and further had imposed customs
duties on goods imported by the radio company in violation of that company's
concession which provided for certain customs duty exemptions. Before the Court,
France maintined that these acts of Lebanon were unlawful and engaged her
responsibility by entitling France to claim “adequate reparation”. [79] Accordingly,
France claimed with respect to the port company, inter alia:
l'abandon par le Gouvernement libanais de l'exécution à l'encontre de la Compagnie des
dispositions de la loi du 26 juillet 1956,
The Court never had occasion to consider these requests as the case was settled
amicably. (See Case concerning the Compagnie du Port, des Quais et des Entrepôts de
Beyrouth and the Société Radio-Orient (France v. Lebanon), Order of 31 August 1960,
l.C.J. Reports, 1960, p. 186; cf. on the terms of the settlement concerning the port
company Le Monde, 15 April 1960.)
The tribunal in the Greek Telephone Company case (1935; Wetter and Schwebel, op.
cit., p. 216) did order a particular telephone line to be transferred to the concessionaire
but added that if the State did not do so for important State reasons, full compensation
would be payable. In this respect, the case resembles the treaty provision and decision in
the Junghans case cited earlier.
A case in which the issue of specific performance was presented in a
rather clearer fashion was the first arbitration between [ 8 0 ] Duff
Development Company, Limited and The Government of Kelantan (1916;
unpublished). On the basis of an agreement of 1912, known
345 53 ILR 297
as “The Deed of Cancellation and Grant of Other Rights”, the company claimed that
the Government had failed to perform certain representations allegedly made by it. The
company requested the tribunal to declare (i) that the Deed was conditional upon the
Government making good the representations to the effect that it would construct a
certain railway, (ii) that in the event the Government did not do so, the company
would be entitled to avoid and set aside the Deed, (iii) that in the case under (ii), the
Deed would never have been valid or binding and the parties ought to be restored to
the positions and rights in which they stood immediately before the execution of the
Deed and (iv) that the company in such event would be entitled to the benefits of a
concession of 1905 which the Deed of 1912 had superseded and replaced. The
arbitrator, Sir Alfred George Lascelles, found that the company's claim must be rejected
as the Deed was not executed on the basis of the alleged representations; hence the issue
of specific performance was never decided.
The Arguments of the United Kingdom in the Anglo-Iranian Oil Co. Case
The only case in which the issue of the availability of restitutio in integrum as a
remedy for [81] breach of a concession has been presented squarely is the Anglo-Iranian
Oil Co. case, but it was never judicially considered as the International Court of Justice
found that it had no jurisdiction in the matter (Anglo-Iranian Oil Co. Case
(Jurisdiction), Judgment of July 22nd, 1952: I.C.J. Reports, 1952, p. 93). The first
alternative claim by the United Kingdom in its Memorial was formulated as follows:
The Imperial Government of Iran is bound, within a period to be fixed by the Court, to
restore the Anglo-Iranian Oil Company, Limited, to the position as it existed prior to the said
Oil Nationalization Act and to abide by the provisions of the aforesaid Convention …
(I.C.J. Pleadings, Anglo-Iranian Oil Co. Case (United Kingdom v. Iran), p. 124.)
The argument of the United Kingdom was based very largely on the pronouncements
in the Chorzów Factory (Claim for Indemnity, Merits) case, which has been discussed and
distinguished above. Reliance was placed also on certain statements appearing in books by
Reitzer, Freeman, Decenciere-Ferrandiere, Lais and Anzilotti. Further, the Shufeldt case
was cited, but the passage quoted in fact was one which the arbitrator in Shufeldt in turn
quoted from another case and which he used merely as an introductory remark. The
Shufeldt case itself is not relevant since the protocol of arbitration between the United
States and Guatemala clearly laid down that the sole questions to be resolved in the case
were whether Shufeldt had the right to claim a pecuniary indemnification and, if so, what
53 ILR 297 346
amount Guatemala [82] should pay to the United States. The arbitrator in no way
considered any questions besides those entrusted to his determination (Shufeldt Claim,
1930; II U.N.R.I.A.A., p. 1079).[7]
The conclusions advocated by the United Kingdom are quoted below. It should be
observed that the remedy of restitutio in integrum is said to be available except in
situations where it is characterised as variously “impossible”, “unnecessary” or
“impracticable”:
The authorities adduced above show that there is nothing in the principles of international law
and in international practice which prevents the Court from decreeing restitution in kind and
that, on the contrary, international law prescribes such restitution as the remedy if restitution is
possible. There is, in this connection, a further material factor to which the Government of the
United Kingdom attaches importance. While it may be admitted that in certain circumstances
restitution in kind may not be either possible or necessary for safeguarding the true interests of
the parties, there may be other cases in which such restitution provides the only practicable and
just solution. Such cases include those in which the offending State is unlikely to be in a
position to grant adequate pecuniary compensation and in which the situation, wrongfully
created by it, is calculated, if allowed to subsist, to affect adversely its solvency …
The relief to be granted in the present case in respect of the action of the Imperial Government
of Iran should be full restitution of its concessionary rights to the Anglo-Iranian Oil Company,
since there is no reason to render such restitution impracticable.
(I.C.J. Pleadings, Anglo-Iranian Oil Co. Case (United Kingdom v. Iran), pp. 116–117.)
[84] The survey of cases and other relevant materials presented above demonstrates
that there is no explicit support for the proposition that specific performance, and even
less so restitutio in integrum, are remedies of public international law available at the
option of a party suffering a wrongful breach by a co-contracting party. An analysis of
the cases shows instead that while declaratory awards have often been made in terms of
defining the rights and obligations of parties to a concession contract, these cases have
never involved the total expropriation or taking by the State of the property, rights and
interests of the concessionnaire; and indeed in the most important of the cases the
validity and continued existence of the contract has not been questioned. The case
analysis also demonstrates that the responsibility incurred by the defaulting party for
breach of an obligation to perform a contractual undertaking is a duty to pay damages,
and that the concept of restitutio in integrum has been employed merely as a vehicle for
establishing the amount of damages. This becomes nowhere more apparent than in
certain remarks on the concept made in 1927 by the late Sir Hersch Lauterpacht:
A problem of a similar kind is involved in the question as to how far the general principle of
private law, that in awarding damages restitutio in integrum should, as a rule, be aimed at,
applies in cases when damages are to be awarded under international law. That principle means
that the injured person is placed in the position he occupied before the occurrence of the
injurious act or omission; it means that, to use the Roman law terminology, not only the
damnum emergens but also lucrum cessans is taken into consideration. (Lauterpacht, Private Law
Sources and Analogies of International Law, 1929, p. 147.)
party into a position from which it has been effectively and definitively removed by the
other, sovereign party.
In summary, it is true as Professor Schwebel has stated in the article quoted earlier,
that declaratory awards of the kind made in the Aramco case come close to being
equivalent to orders for specific performance. However, the declaratory awards rendered
in those instances are not comparable to an order for physical restitution by a State of a
nationalised enterprise to a foreign concessionaire. There is considerable weight in the
following statment by Dr. Z. A. Kronfol in which he sums up a review of the
statements of certain writers, and some cases:
Thus, there seems to be a contradiction between theory and practice. In reality, practice
follows a pattern which is exactly the opposite of the one accepted in theory. In practice,
compensation constitutes the principal remedy, restitutio being clearly an exceptional one.
(Kronfol, Protection of Foreign Investment; A Study in International Law, 1972, p. 100; cf.
Young, “Remedies of Private Claimants Against Foreign States” in Selected Readings on
Protection by Law of Private Foreign Investments, 1964, p. 905, at pp. 935–938.)
Taking a broad view of State practice over the past decades, there is reason to believe
that the sovereignty actually claimed and exercised by modern nations over their natural
wealth and resources (with the tacit or explicit acquiescence of other States) constitutes
weak support for the contentions of the Claimant in this case as to the remedies
available to a concessionaire in [86] circumstances such as the present. The trend of
practice has gone another way, and may have become a custom and acquired the force
of law.
claim specific performance and restitutio in integrum. However, as it is arguable that the
general principles of law, as used in said paragraph 7, are not determined on the basis of
both public international law and municipal principles of law, but merely with
municipal principles [87] of law as a foundation, the Tribunal will now consider the
latter.
In English law the remedy of specific performance was an equitable remedy and that
may be the explanation of its restrictive role in Anglo-American law even at the present
day. In England and the United States the norm is damages and the exception is
specific performance. It is only when damages are an inadequate or incomplete remedy
that specific performance may be granted and not even then, it has been held, if the
difficulties of enforcing the order are so great as to outweigh the plaintiff's need for it.
The same limitations exist on the remedy of an injunction to restrain certain conduct
which it is similarly in the court's discretion to grant or not.
In German law specific enforcement is the normal remedy as regards all obligations,
and damages are awarded only when specific performance is not possible or the claim is
for damages rather than specific relief. The position in Danish law is similar; and it may
be said that the main rule in the uniform Scandinavian Sale of Goods Acts—a rule
which by analogy has a wider application in the law of contracts—is akin to the
governing principle of German law.
There are two further aspects which must be observed in an inquiry into the general
principles of law on this subject.
Firstly, the principles even of those systems of law which recognise the most far-
reaching rights for an innocent [88] party to demand specific performance, are
principles of ordinary commercial law. They have been devised, discussed and applied
mostly in relation to everyday sale of goods contracts and other transactions of limited
duration where, moreover, typically one party performs in kind and the other in
money. It is only by stretching the meaning of legal concepts and general words into the
extreme that these principles can be said to extend to contracts which like the BP
Concession still have a term of 40 years to run and which provide for the right to
extract and remove natural resources requiring vast fixed industrial installations and
presuppose an intimate and complex relationship between the parties.
Secondly, the fact that the State is the respondent party is one which cannot be
overlooked. Dr. Mitchell, on the basis of a survey of the municipal laws of England,
France and the United States, has made it clear that the remedies of specific
performance and restitution in kind normally are unavailable against governmental
authorities under public contracts. He states with respect to what he terms the principle
of governmental effectiveness:
53 ILR 297 350
To deny enforceability to public contracts under the present principle is then to assert no more
than that, even where normally available, the remedies of specific performance or injunction or
their equivalents are ruled out by the principle of governmental freedom of action.
Compensation is not thereby necessarily also eliminated, since it is the performance of, or
abstention from, a particular act which is obnoxious to the general rule and not the payment of
money. Rarely, as has [89] been shown, the payment of compensation may itself offend. To
admit the possibility of compensation does not however necessarily mean that the quantum of
compensation should be the same as the quantum of damages for breach.
The result of the general principle here advanced is therefore that the public authority may be
exempt from performing its contract according to its strict expression, but that where this
exemption results in loss to the individual contractor compensation should be payable save
where that payment would offend the principle.
(Mitchell, The Contracts of Public Authorities, 1954, p. 20.)
The commercial laws of representative nations in the world thus are disparate with
respect to the effects of unilateral breach of contract and the availability to the innocent
party of the remedy in contract of specific performance.
probably true to say that the discussion about restitutio in integrum in public
international law and that concerning specific performance in the field of the general
principles of law, in fact have reference to the same problem.
Keeping in mind the dangers of the confusing terminology, it remains to sort out the
conclusions to be drawn from the exposition above as regards the matter under
consideration. As already indicated in Section 4 of Part VI, the problem may be
approached by asking two questions.
The first question is whether the BP Nationalisation Law put an end to the BP
Concession for all practical purposes or whether the agreement continues in effect, and
entitles the Claimant to call for specific performance of it until such time as the
Claimant elects to terminate it. In the [91] context of those parts of public
international law which are considered here, there is some support for the abstract thesis
that unilateral abrogation does not have the effect of extinguishing the obligation of the
party in default to perform, but the remedy of specific performance has not been
explicitly recognised. It may therefore be concluded that, leaving aside peripheral means
of redress sometimes said to be available to sovereign States vis-à-vis their equals, the
principal remedy under public international law in regard to matters of essentially
economic significance is damages.
In the practice of international tribunals relating to matters of the indicated character
declarations have often been made to the effect that agreements, whose meaning or
effects are disputed, are valid, and decisions have been made on contested issues as to
whether conduct of a particular kind is permissible or not under an existing contract
recognised by both parties as valid and binding per se. In theory, a tribunal making such
a declaration or decision should, if seised with a subsequent request to enforce it or
translate it into an executory order, decree specific performance against a recalcitrant
party. In most cases, however, the limited jurisdiction and powers of ad hoc arbitral
tribunals, resting as they mostly do on carefully circumscribed compromis, would not
permit the arbitrators to take any such further step. Nor has any international tribunal
ever decided a question [92] like that presented in this case as to whether, despite a
fully implemented nationalisation of an entire enterprise, the nationalising Government
is bound specifically to perform its repudiated contractual undertakings, annul the
nationalisation and restore the position of the concessionaire to the status quo ante.
The issue of the continuing validity of the BP Concession, examined in the light of
the general principles of law, also turns largely upon the question whether and to what
extent under the commercial laws of representative nations specific performance is a
53 ILR 297 352
remedy available to the innocent party at its option. It appears that the legal systems
reviewed here offer different solutions to the problem, ranging from the very extensive
right that Danish law gives the innocent party to force the party in default, including
the Danish Government and governmental authorities, to perform their commercial
obligations in natura, to the attitude of English law that specific performance is granted
at the discretion of the court only where damages are not an adequate remedy, and not
in proceedings against the Crown. Now, in commercial transactions the interest of a
party in obtaining performance of a contract can certainly as a rule be calculated in
terms of money, and hence normally the sole remedy is damages.
[93] The municipal systems of law examined here thus profess allegiance to two
divergent principles on the question at issue. It is therefore not possible to hold that
under the general principles of law an agreement fundamentally broken or abrogated by
one party continues in force and is to be specifically performed indefinitely until the
innocent party elects to declare it terminated, for under English and American law the
sole remedy of the innocent party might well be an action for damages, and in several
legal systems the remedy of specific performance does not lie against the State. It is
another matter that the assessment of the damages may be made with reference to what
the position of the innocent party would have been absent the breach or termination by
the party in default.
Hence it is clear even from a brief examination of the few legal systems considered in
the foregoing that there does not exist a uniform general principle of law that an
agreement continues in effect after having been repudiated by one party but not by the
other, and no uniform general principle of law pursuant to which specific performance
is a remedy available at the option of an innocent party, especially not a private party
acting under a contract with a Government. The Tribunal consequently has refrained
from analysing in depth the legal position in each of those systems and from extending
its research so as to encompass also other systems of law, not emanating [94] from or
akin to those considered here, that would otherwise have been investigated, such as
Islamic Law, and Asiatic systems of law.
The second question is whether there is a legal basis for the Claimant's request for a
declaration to the effect that it is entitled to be restored to the full enjoyment of its rights under
the BP Concession. Evidently, if the conclusion is reached that the BP Nationalisation Law
effectively put an end to the BP Concession, the question of such restoration does not arise.
However, considered as a separate issue, it necessitates an examination of the remedy of
restitutio in integrum which, as mentioned earlier, may be one existing in international
353 53 ILR 297
law and applied by international tribunals. It is sufficient here to refer to the summary
of the study which has been made in paragraph (iv) above and to state that, while
restitutio in integrum in the sense of restitution in kind of industrial property, i.e.
physical restoration of such assets, has sometimes been claimed, and most explicitly by
the United Kingdom in the Anglo-Iranian Oil Co. case, no international tribunal has
ever prescribed this remedy with regard to such property, nor considered it in a context
such as that presented in these proceedings. The concept has rather been employed at
times as a principle for assessing the amount of damages due for breach of an
international obligation.
* * *
[95] The real issues of substance which require a resolution by the Tribunal are novel
in character and scope in that they have not previously been scrutinised judicially.
While certain trends in the law are discernible, there are no precise and clear rules that
provide an obvious answer to any of the issues. The facts must be appraised and the law
interpreted and applied in a balanced consideration of the intrinsic merits of the case
and the de facto position of the Parties.
An expropriation, nationalisation or taking, if and when implemented in full, is an
act of finality where a State has exercised its sovereign territorial power to expel a
foreign enterprise and appropriate its property and other rights. No State has ever
reversed such an action by granting restitutio in integrum, and it is unlikely that any
State exercising diplomatic protection of its nationals will demand such a reversal
without offering or eventually accepting the alternative remedy, exercisable at the
option of the defaulting State, of reparation in the form of monetary compensation. It
has rarely been suggested that the subject-matter in dispute is not property, rights and
interests of a purely economic nature on which, thus, a financial value can be put. It has
only been argued doctrinally that, where damages are not an adequate remedy (meaning
where the State demonstrably is insolvent or incapable of discharging its proper
obligations), [96] restitutio in integrum should be considered. The Claimant has made
no submission to such effect. At times it has been indicated, also, that damages may be
difficult to calculate in respect of the value of an abrogated long term contract.
However, such difficulties are not insurmountable.
The consequences of holding that a concession agreement continues in effect
indefinitely despite a nationalisation which amounts to a total repudiation of the
agreement by the grantor State and which partakes of the aforesaid character of finality,
are complicated and perplexing in a long term perspective. Theoretically, the alleged
53 ILR 297 354
rights of the concessionaire are not subject to limitation (the imposition by an arbitral
tribunal of a rule of extinctive prescription would be purely discretionary and without
an established legal basis), and hence the submissions of the Claimant in this arbitration
could be made for the first time in 10, 20 or 30 years from now. Assuming that the
enterprise has been carried on actively during all that time, the claim of the
concessionaire eventually would not appear realistic. Even in a purely municipal law
context, such an action would not be admissible since an order for turning the clock
back would upset the current position too profoundly and would have unforeseeable
practical consequences. The situation is the same if an award were given now to the
effect that the BP Concession continues in full force and effect until terminated by the
Claimant. So long as the present position in fact continues to exist, such a declaratory
award would [97] remain valid and outstanding but with the passage of time necessarily
would acquire a quality of increasing absurdity. This is simply the result of what Georg
Jellinek so aptly termed “die normative Kraft des Faktischen”; an acceptance of the
realities of the contemporary international community.
A rule of reason therefore dictates a result which conforms both to international law,
as evidenced by State practice and the law of treaties, and to the governing principle of
English and American contract law. This is that, when by the exercise of sovereign
power a State has committed a fundamental breach of a concession agreement by
repudiating it through a nationalisation of the enterprise and its assets in a manner
which implies finality, the concessionaire is not entitled to call for specific performance
by the Government of the agreement and reinstatement of his contractual rights, but
his sole remedy is an action for damages.
For these reasons, the Tribunal cannot accept the Claimant's principal proposition
with respect to the issue now under consideration, and the Claimant cannot be granted
the relief asked for in the requested Declarations Nos. 2, 3 and 4 (see Part V above); the
requested Declaration No. 6, being predicated on Nos. 2 and 3, also cannot be made.
The BP Concession can be said to remain in force and effect as a contractual
instrument only in the sense that it forms the basis of the jurisdiction of the Tribunal
and of the right [98] of the Claimant to claim damages from the Respondent before the
Tribunal.
oil extracted from the area of the Concession Agreement after as well as before 7
December 1971” and “all installations and other physical assets”. The absence of any
right of the Respondent to the said property is also asserted.
The contention as to the ownership of oil extracted from the concession area after the
date of the BP Nationalisation Law is based on the assumption that the BP Concession
survived the nationalisation; that assumption is not accepted by the Tribunal. Hence
the requested Declaration cannot be made. It may be added that the fact that ownership
of the oil in its natural strata is vested in the State of Libya under the Petroleum Law of
1955 does not argue in favour of the Claimant.
As to the other property in question—i.e. oil extracted before 7 December 1971 and
physical assets—the Tribunal is not prepared to come to a decision without receiving
additional evidence and argument. In order not to hold up the determination of other
issues, the Tribunal exercises its discretion to confine this [99] Award to decisions on
such other issues. The request for Declaration No. 5, to the extent that it relates to oil
extracted before 7 December 1971 and to physical assets, is joined with the claim to be
considered in the subsequent stage of the proceedings.
(d) Damages
The Tribunal holds that under the rules of applicable systems of law which at the
present stage of the proceedings require no detailed exposition or analysis, the Claimant
is entitled to damages arising from the wrongful act of the Respondent. The principle of
compensation is also recognised in the BP Nationalisation Law. The nature and extent
of such damages can only be assessed in subsequent proceedings before this Tribunal.
FOR THESE REASONS, THE TRIBUNAL DECIDES as follows with respect to the
Declarations requested by the Claimant:
Decision:
The BP Nationalisation Law and the subsequent implementation thereof were each a breach of
the obligations of the Respondent owed to the Claimant under the BP Concession.
53 ILR 297 356
[100] Decision:
The BP Nationalisation Law was effective to terminate the BP Concession except in the sense
that the BP Concession forms the basis of the jurisdiction of the Tribunal and of the right of
the Claimant to claim damages from the Respondent before the Tribunal.
Decision:
Refused, as a consequence of the decision on the requested Declaration No. 2.
Decision:
Refused, for the reasons stated in subsections (a) and (b) of Section 5 of Part VII.
Decision:
Refused, insofar as the requested Declaration refers to crude oil extracted after 7 December
1971. With this exception, the request is joined with the claim to be considered in the
subsequent stage of the proceedings.
357 53 ILR 297
Decision:
Refused, as a consequence of the decision on the requested Declaration No. 2 that the BP
Nationalisation Law was effective to terminate the BP Concession.
Decision:
The Claimant is entitled to damages arising from the wrongful act of the Respondent, to be
assessed by this Tribunal in subsequent proceedings.
AND THE TRIBUNAL FURTHER DECIDES to reserve its decision on costs and to order
the Claimant to present a Memorial in fifteen copies setting forth its case with respect
to its request for Declaration No. 5 except as above decided and to its claim for
damages, accompanied by all supporting documents and other relevant materials, on or
before 1 February 1974 or such other date as the Tribunal may later fix.
NOTE.—In view of the close connection between the Award (Competence to Re-Open
Stage of the Proceedings), printed at p 375 below, and the Memorandum transmitted
by BP Exploration Company (Libya) Ltd to the Tribunal on 14 February 1974, the text
of the Memorandum follows.
I
1. On 23 November 1973, in a letter addressed to the Deputy Secretary of the
Tribunal the Claimant indicated that it sought
a hearing in order to apply to the Tribunal for a re-opening or continuation of the first stage of
the proceedings on the ground of partial invalidity of the Award by reason of substantive and
procedural errors (including the failure of the Tribunal to accord the Claimant a fair hearing on
all questions considered by the Tribunal in its Award) affecting, in essential respects, the refusal
by the Tribunal of the Claimant's requests for Declarations Nos. 2 to 6.
2. By a letter received by the Agent of the Claimant on 19 December 1973, the Sole
Arbitrator stated:
I have carefully studied your letter and would kindly ask you to indicate and substantiate in
writing (i) the authorities (including statutes, cases and literature) which would permit the
Tribunal to decide on ‘a re-opening or continuation of the first stage of the proceedings’, (ii)
the alleged ‘substantive and procedural errors’, and (iii) how and to what extent such errors
affect the conclusions of the Award. Pending receipt of your answer, which I expect to obtain as
soon as possible, no date can be set for the requested hearing.
3. The purpose of the present Memorandum is to give to the Tribunal the indication
which it has requested of the grounds upon which the Applicant will rely when making
its oral application to the Tribunal to reopen and continue the first stage of the
proceedings in this arbitration.
breach. Of these six requests only the last, to the effect that the Claimant is entitled to
damages for the Respondent's breach of contract, was granted. The other five requests
were refused. The present application arises out of the circumstances and manner in
which this refusal took place.
6. The Claimant contends that in refusing these requests the Tribunal made a
fundamental error of law. This error is so substantial that it amounts to a failure by the
Tribunal to apply the law; and for that reason, in the first place, the relevant part of the
Award is invalid.
7. What is this error? The Tribunal has held, in relation to requested declaration No.
2, that “the BP Nationalization Law was effective to terminate the BP Concession,
except in the sense that the BP Concession forms the basis of the jurisdiction of the
Tribunal and of the right of the Claimant to claim damages from the Respondent
before the Tribunal”. As will Presently be indicated, the Claimant sees this conclusion
as affected by more than one error. But the feature which the Claimant submits is the
most erroneous in law and the most significant in its consequences is the proposition,
implicit in the conclusion, that a party to a contract can by its own breach put an end
to the contract; or, to put the point in different but more specific terms, that a
Government may, by breaking a concession governed by a law other than its own, put
an end to its legal commitment. This conclusion runs contrary to every legal system
connected with the Concession, whether the principles of Libyan law, the principles of
international law or general principles of law.
8. This error of substance is not the only basis on which the Claimant is obliged to
challenge the validity of the Award. The manner in which the Tribunal reached its
conclusions on Requested Declarations Nos. 2–6 is such as to render the relevant part
of the Award procedurally defective and, for that reason, void. This procedural defect
lies in the failure of the Tribunal to apply a fundamental principle of natural justice—
the principle of ensuring that each party to proceedings knows, and is given an adequate
opportunity to answer, the case which it has to meet.
9. In the present arbitration the Respondent has at all material times known the case
against it. It has had the opportunity to reply. It has voluntarily chosen not to use it.
The same is not true of the Claimant. The Tribunal has clearly stated that “the
conclusions in the Award … are based on a broader consideration of the issues than that
permitted by the format of the Claimant's argument in support of its claims”. It is in
fact manifest from a perusal of the Award that the Tribunal has developed a whole line
of argument against the Claimant's request for Declarations Nos. 2–6 of which the
Claimant was totally unaware and to which it was given no opportunity to reply. The
elaboration by the Tribunal of this line of argument, and the manner of its doing so,
goes far beyond the permissible limits of any such maxim as jura novit curia. This
procedural error is exacerbated by the fact that it has come about notwithstanding the
repeated invitation by the Claimant to the Tribunal to raise with the Claimant any
points relating to the Claimant's argument about which the Tribunal might feel any
doubt.
53 ILR 297 360
11. Article 28(5) empowers the Sole Arbitrator to determine “the procedure to be
followed in the Arbitration”. In addition, Article 28(6) empowers the Sole Arbitrator to
determine “the place of arbitration”. In the Minutes of the Meeting of 4 October 1972
the Tribunal ordered the place of arbitration to be Copenhagen, Denmark; and in the
Award itself the Tribunal has held that the consequence of this is that “the procedural
law of the arbitration is Danish”. (Award, p. 16). The Tribunal expressly deemed the
Award to be Danish and stated that “the proceedings have been conducted in a manner
designed to be consistent with this view and intent.”
12. With this in mind, the Claimant has sought an assessment of the position in
Danish law and, in particular, under the Arbitration Act of 1972. An opinion has
therefore been sought from two distinguished Danish lawyers, Professor Isi Foighel and
Professor Allan Philip. The full text of this Opinion is appended to this Memorandum
as Annex l.[8] It appears from the Opinion that an arbitration award may be void, wholly
or in part, as the case may be, on the ground that the hearing of the case has not
safeguarded the parties, or that there has been a deviation from the rules prescribed for
the arbitration tribunal which has had a major bearing upon the decision, or that the
tribunal has acted ultra vires or that the award violates fundamental principles of law.
These grounds are fully discussed in the Opinion, which, as will be seen, concludes that
the Award rendered on 10 October 1973 is partially void.
13. In Part III of the Opinion, consideration is given to the power of the Tribunal to
reopen, review or reconsider the Award. The Opinion points out that the proper first
step is for the aggrieved party to turn to the arbitrator himself. The Opinion establishes
that the arbitrator may re-open or continue the proceedings in appropriate
circumstances. The Opinion then concludes that in a case where the validity of all or
part of an award is called in question, there is an obligation upon the arbitrator to
reopen and continue the proceedings for the purpose of curing the award of its
invalidity. Otherwise, the arbitrator would be in breach of his obligation to grant a valid
award.
14. The position in Danish law accords generally with the precedents in international
arbitrations relating to the revision of arbitral awards on the grounds of defects of
procedure or essential errors of substance. It will suffice at this stage to refer generally to
the conclusions reached by Carlston, The Process of International Arbitration (1946),
which contains a full review of the authorities. On the competence of a tribunal to re-
open a decision he said (at p. 224):
[8. Omitted.]
361 53 ILR 297
Until the tribunal has finally adjourned, it is not lacking in jurisdiction to re-examine and
correct its decision upon a proper showing by a party. While the error should be clear,
substantial and of prejudice in order for it so to act, it should not dismiss any petition for
rehearing upon the ground of lack of authority and res adjudicata.
15. Accordingly, the purpose of the application which the Claimant proposes to
make orally is to seek from the Sole Arbitrator an order for the re-opening of the
arbitration proceedings in relation to that part of the Award which deals with Requested
Declarations Nos. 2–6 with a view to completing the Award on those points.
16. The present memorandum is concerned only with the application for a re-
opening or continuation of the first stage of the arbitration. If this application is granted
it will then become necessary to develop in detail the nature of the error by which the
Claimant alleges that the validity of the Award is affected. At this stage, however, the
Claimant considers it valuable to give some further indication of the nature of the error.
17. The remainder of this Memorandum will, therefore, be devoted to this indication
of the nature of the substantive and procedural errors made by the Tribunal.
53 ILR 297 362
II
19. These Requested Declarations (Nos. 2–6) form a group which, in the Claimant's
understanding, could properly be sought so as to give expression to the consequences
flowing from Declaration No. 1, namely (as found by the Tribunal at p. 51 of the
Award) that
the BP Nationalization Law, and the actions taken thereunder by the Respondent, do
constitute a fundamental breach of the BP Concession as they amount to a total repudiation of
the agreement and the obligations of the Respondent thereunder.
20. But the fact that Requested Declarations Nos. 2–6 form a group does not exclude
the existence of a logical progression in the order in which they are presented to the
Tribunal. Thus Requested Declaration No. 2 stands logically prior to Declarations Nos.
3, 4, 5 and 6. Indeed, this is twice recognised by the Tribunal. First, at p. 52 of the
Award, the Tribunal says:
All the Declarations requested by the Claimant to be made by the Tribunal turn upon the issue
of the effect of the breach of contract which, as determined earlier, has been committed by the
Respondent.
Second, in its Conclusions, the Tribunal expressly states (Award, pp. 99–100) that
the rejections of Requested Declarations Nos. 3 and 6 are a consequence of the decision
on Requested Declaration No. 2 and impliedly finds that the rejection of the major part
of Requested Declaration No. 5 is a consequence of the same decision.
21. It necessarily follows, therefore, that Requested Declaration No. 2 should have
been considered prior to Requested Declarations 3–6. As stated, this is logically
necessary and was perfectly possible. It would, in fact, have been unavoidable if the
Claimants had, as they could have, limited their Requested Declarations to Nos. 1, 2
and 7. In that case, the Award could not have brought into the discussion the
arguments associated with Requested Declaration No. 4.
363 53 ILR 297
22. However, the only separate and specific treatment given to Requested
Declaration No. 2 is to be found at p. 53 of the Award. There, under the heading (i),
the question is posed “Did the BP Concession survive the nationalization?” The only
point then mentioned in this connection is, in one sentence, the fact that the
Claimant's argument “is not qualified by reference to the time element” (an observation
which, incidentally, fails to take into account paragraph 8 of the request for declarations
formulated in the Claimant's Memorandum of 8 August 1972—see paragraphs 47 and
65 below). Reference is made elsewhere in this Memorandum to the procedural
implications of the presumption then made by the Tribunal.
23. In fact what the Tribunal does is to bring forward its discussion of Requested
Declaration No. 4 and deal with it as if it controlled Requested Declaration No. 2.
This, as the Claimant sees it, contributes greatly to the Tribunal's major error.
24. The Tribunal, however, did not examine these authorities directly and exclusively
by reference to the proposition in support of which they were introduced.
26. Instead, the Tribunal restated the issue in such a way as to make it something
quite different from that put forward by the Claimant and then, in passing, indicated
the inadequacy of the Claimant's cited authorities to support a proposition which
formed no part of the Claimant's case.
27. This suppositious proposition was formulated by the Tribunal at p. 53. It there
posed the question: “Are specific performance and restitutio in integrum remedies
available to the Claimant?” This, however, was never a question raised by the Claimant.
The references by the Claimant to specific performance appeared in two contexts. The
first was amongst the authorities demonstrating the continuity of a contract despite
breach by one party. The other was in connection with the contention (at paragraphs
173–179 of the Memorial) that “the Claimant is entitled to restitution”. Nowhere did
the Claimant ever seek specific performance or restitutio in integrum.
2 are not mutually interdependent. And the rejection of Requested Declaration No. 4
would not affect the other requested Declarations. Yet the Tribunal made its whole
consideration of Declaration No. 2 depend upon its discussion of its own reformulation
of Requested Declaration No. 4.
29. The Tribunal even recognised that its formulation of the issue did not
correspond with what the Claimant had sought. At pp. 53–54 of the Award the
Tribunal said:
It may be argued that the Claimant does not in fact ask for an order of restitutio in integrum,
but merely for a declaratory statement as to its legal position under the BP Concession and with
respect to certain property and that the issue of whether restitution in kind is an available
remedy therefore is not presented. Such a distinction, subtle though it is, may be relevant for a
proper understanding of the decisions of international tribunals (see further below). The
Tribunal holds, however, that no such distinction should be made. If it is found that the
Claimant is entitled to be restored to the full enjoyment of its rights under the BP Concession,
and is the owner of the oil and assets referred to, then the Claimant is entitled to an order for
specific performance, or alternatively, a declaratory award of entitlement to specific
performance. The question arising for decision therefore should be formulated as set forth in
the first sentence under this paragraph (ii).
30. This paragraph represents the initial step in the error which, so the Claimant
respectfully submits, fundamentally affects the Tribunal's decision on, at any rate,
Requested Declarations Nos. 2, 3, 5 and 6.
31. The Claimant submits that there is no good reason for setting aside the clear
distinction between a declaration that a contract is not brought to an end by unilateral
breach and an order for restitutio in integrum or specific performance. Restitutio in
integrum and specific performance are remedies; the question of whether they are to be
awarded is wholly separate from the substantive issue of the survival of the contract after
breach. (On the limitation of the first stage of the case to declarations of the rights of
the Claimant, see Part III below, on “Procedural Defects”.)
32. There is a clear distinction—existent in so many systems of law that its generality
as a principle of law cannot be denied—to be drawn between a declaratory judgment
and an order for specific performance. Perusal of Professor Edwin Borchard's
magisterial study on Declaratory Judgments (2nd ed. 1941) demonstrates the widespread
and fundamental character of this distinction. As he says (at p. 110) in the section
devoted to a comparative study of the subject: “In many countries, whether or not they
formally admit the procedure for a declaratory judgment as such, numerous actions are
permitted which look exclusively to a judgment declaring the existence or non-existence
of legal relations, a judgment embodying no executory decree”. Nowhere is the totally
separate character of a request for a declaration and one for an enforceable order, such
as specific performance, more compellingly demonstrated than in the chapter dealing
with “Contracts”, especially in the section headed “Substitutes for Specific
Performance”. A copy of the relevant pages from this volume are appended hereto as
[9]
Annex 2.
[9. Omitted.]
365 53 ILR 297
33. As can readily be seen there are many cases in which a contract is broken and
survives, but the remedy of specific performance or restitutio in integrum is declined by
the court. In English law, to give an example, the highest Court, the House of Lords,
has recognised that in appropriate cases it has the power to grant a declaration that a
wrongful dismissal is invalid, even though no order for specific performance could be
made against the employer. It was said in a dissenting judgment in the Court of Appeal,
which was subsequently approved on appeal by the House of Lords: “why should he
(the injured party) not be entitled to have his rights vindicated and made known to the
world by a declaration?” (Vine v. National Dock Labour Board [1956] 1 Q.B. 658 at
675). This view was approved by Lord Morton [1957] A.C. at 504): “the declaration
was properly made in my view, so as to make it clear to all the world what was the
plaintiff's position in the eyes of the law”.
34. The same distinction between a declaration of right and an order for specific
performance is reflected in the terms of the Crown Proceedings Act, 1947—the statute
which for the first time in English law rendered the Crown amenable to suit in tort and
extended the possibility of proceedings against it in contract. Section 21 contains the
following provision:
… where in any proceedings against the Crown any such relief is sought as might in
proceedings between subjects be granted by way of injunction or specific performance, the
court shall not grant an injunction or make an order for specific performance, but may in lieu
thereof make an order declaratory of the rights of the parties …
35. The Tribunal, while recognizing the distinction, nonetheless at several places in
the Award confuses the two points. Thus at p. 83 the Tribunal concedes
that it is arguable that when an international contractual obligation is unlawfully abrogated by
one party, the other party may regard the agreement as still existing.
It then proceeds to observe that “the stated principle of the continuing validity of the
agreement rests only on a basis of extreme generality”—a remark which would appear
to be inappropriate in an award which must resort to “general principles of law”. The
Tribunal then goes on to repeat the error by saying that “the important question is what
remedies would be available to the party claiming the continuance of the agreement.”
36. The important question is quite different. It is: what are the consequences in law
of the continuity of the agreement? If the distinction between a declaration of legal
consequences and the successful implementation of a specific remedy were not a valid
one, the International Court of Justice would never have been able to give its Advisory
Opinion on the Legal Consequences for States of the Continued Presence of South Africa in
Namibia.[10]
37. The reconstruction or reformulation by the Tribunal of the issues in a sense quite
alien to the Claimant's intention is to be perceived again at the bottom of p. 90 of the
Award where the Tribunal says:
The first question is whether the BP Nationalization Law put an end to the BP Concession for
all practical purposes or whether the agreement continues in effect, and entitles the Claimant to
call for specific performance of it …
And the same fusion of ideas is to be found in the first paragraph on p. 93.
39. The Claimant cannot find anywhere in the Award any authority or other
reasoned consideration to support the first part (emphasised below) of the critical
conclusion stated in the second paragraph on p. 93 in the following terms:
Hence it is clear even from a brief examination of the few legal systems considered in the
foregoing that there does not exist a uniform general principle of law that an agreement continues in
effect after having been repudiated by one party but not by the other, and no uniform general
principle of law pursuant to which specific performance is a remedy available at the option of
an innocent party, especially not a private party acting under contract with a Government.
The second part of the conclusion refers, as already stated, to a proposition not raised
by the Claimant and irrelevant to Requested Declaration No. 2.
40. Indeed, it must be questioned whether it is even correct to speak in the context of
“general principles of law”, as the law governing an agreement, of “uniform” general
principles. By way of example reference may be made in this connection to the
consideration by the late C. W. Jenks of general principles of law in his study of “The
Universality of International Law” in The Common Law of Mankind (1958), p. 120 et
seq., where he demonstrates that the lack of uniformity in the various legal systems does
not exclude the identification of general principles applicable in the international legal
system. (See especially the discussion of “discharge of treaties by default or frustration”,
at pp. 148–152.)
42. The end result of the approach used by the Tribunal is a conclusion which
conflicts with every authority, international and municipal, which the Claimant has
been able to find, regarding the effect of breach upon a contract. It has been impossible
to discover any authoritative statement contrary to the view that a treaty or a contract
survives breach by one party unless the innocent party elects to treat the breach as
terminating the agreement. This fundamental legal doctrine, to a restatement of which
in the context of the present case Requested Declaration No. 2 was directed,
367 53 ILR 297
is entirely unaffected by the possibility that a tribunal may decline to award specific
performance as a remedy (if requested—which it was not in this case) or that in fact the
wrongdoer may fail to comply with his obligations under the judgment. If it is true that
States do not reinstate unlawfully nationalized enterprises, it is no less true that States
on many occasions fail to meet their pecuniary obligations arising out of wrongs
committed by them. If this latter consideration were to be regarded as a justification for
saying that the legal obligations do not exist, then the doctrine that “fact makes law”
would have been carried to the point of the destruction of legal commitment. The
Tribunal will recall its observation that
the parties to an agreement, even if one of them is a State, must, however, be presumed to have
intended to create an effective remedy.
(Award, p. 16.)
43. It remains necessary to point, finally, to another feature of the Award. At pp. 51–
52, it clearly and unequivocally holds that “the taking by the Respondent of the
property, rights and interests of the Claimant clearly violates public international law
…” The Claimant has contended that the Tribunal may not attribute to an
internationally illegal act any valid legal consequences. (See Memorial, paragraphs 190–
199). In particular, the Claimant has referred to the public policy of Denmark which
requires the non-application of any foreign law that is inconsistent with international
law. Thus the Tribunal has arrived at a conclusion which conflicts with the public
policy of the State in which the Award is rendered, whose national character the
Tribunal has deemed the Award to possess and subject to whose procedural law the
proceedings were conducted. (See paragraphs 31–36 of the Opinion on Danish Law,
[11]
Annex I below.) The procedural implications of this situation are examined in Part III
below. For the moment it is sufficient to identify the point as one of substantive error.
III
PROCEDURAL DEFECTS
44. The Tribunal will recall that in paragraph 55 of Part Two of the Memorial the
Claimant particularly emphasized the difficulties which might flow from the absence of
the Respondent. The Claimant said:
… the Claimant ventures to suggest that in view of the Respondent's default of
appearance it is particularly desirable and perhaps even necessary that the Sole
Arbitrator should seek from the Claimant clarification of any uncertainty, obscurity
[11. Omitted.]
53 ILR 297 368
or doubt by which he may be troubled. The Claimant would therefore respectfully urge the
Sole Arbitrator to put to the Claimant, either orally or in writing, any points on which he may
desire further information, evidence or argument. The present economy of the Claimant's
argument stems from its view that this is a relatively simple and straightforward case which
should not be burdened with argument or material not directed to the essential issues.
45. The Claimant is bound to draw to the attention of the Tribunal the fact that the
grounds adopted by the Tribunal for the rejection of Requested Declarations Nos. 2–6
have completely taken the Claimant by surprise. Not the slightest hint was given to the
Claimant at any time during the proceedings that the Tribunal was experiencing
difficulty with the Claimant's argument on these points.
46. The net effect of the Tribunal's approach to the requests for Declarations Nos.
2–6 is to convert the Claimant's Memorial in the first stage of the proceedings from one
related to the determination of legal rights into one concerned with the grant of
remedies. Yet it should be apparent, as much from the procedural steps leading up to
the Memorial, as from the Memorial itself, that this was neither the Claimant's
intention nor the Tribunal's expectation.
47. It is necessary to recall the fact that on 8 August 1972 the Claimant filed a
document with the Tribunal containing, inter alia, a request for the division of the
arbitration proceedings into two parts: “—in broad terms, the first part to be concerned
with the merits of the case, the second part to be concerned with the assessment of
damages”. This document then went on to consider “the character of the division” in
the following terms:
. . . .
If the Sole Arbitrator were to make an order for the division of the case into two parts, the
Claimant would-propose in general terms to limit its Memorial in the first part to a statement
of facts coupled with legal argument directed to supporting a request for a declaration covering
the following matters: …
(2) The Libyan Nationalization Law of 9th December, 1971 was a breach of the Libyan
Government's obligation under the Concession Agreement;
(3) The said breach was ineffective to terminate the agreement, which remains in law valid and
subsisting;
(4) The said breach entitled the Claimant to reparation in the form either of:—
(a) Restitutio in integrum together with damages; or
(b) Damages; . . . .
(7) As a breach of international law, the action was a nullity to which recognition must not be
accorded by the organs of any State;
(8) Any crude oil extracted from the area of the Claimant's Concession, and any products
thereof, are the property of the Claimant to which, until such time as reparation is duly
completed, the Claimant is entitled to lay claim. The value of any crude oil or products
recovered by the Claimant prior to the completion of reparation shall be brought into the
final accounting with the Government.
As can be seen, the Claimant refers in items (4) and (6) to its entitlement to damages. It would
not be the intention of the Claimant in the first stage of the proceedings
369 53 ILR 297
to do more than seek from the Sole Arbitrator a declaration in general terms approximating to
those set out in items (4) and (6).
. . . .
As the Sole Arbitrator will appreciate, the statement above of the declarations which will be
sought by the Claimant cannot at this stage represent the Claimant's final views on this matter;
and accordingly the Claimant reserves its right to amend the content of these declarations,
though always respecting the general division suggested above.
48. On 4 October 1972 the Tribunal made an order in which it said (inter alia):
(2) The Arbitration proceedings shall be divided into two parts, the first dealing with the merits
of the Claim and the second with the assessment of possible damages …
(4) The Memorial shall contain . . . .
(ii) the Claimant's request for an Interim Award in respect of the merits of the claim,
divided, as the case may be, into alternative submissions and containing a full statement
of the relevant facts and law.
49. It can thus be seen that in August/October 1972 it was understood both by the
Claimant and the Tribunal that the first stage of the arbitration proceedings was
concerned exclusively with the determination of the rights of the parties. It was no part
of the Claimant's case to seek relief by way of specific performance. The Claimant gave
the Tribunal a clear indication of the kind of declaration which it was going to seek;
and the Tribunal gave no indication that it read that kind of declaration, and
particularly those numbered (3), (4), (7) and (8) in the document of 8 August 1972, as
moving beyond the sphere of declarations of law into that of an application for specific
remedies. Indeed, if the Claimant had in its Memorial of 28 March 1973 actually
included a clear request for an order of specific performance the Tribunal should have
held that such an application was inappropriate as being outside the terms of the
Tribunal's Order of 4 October 1972.
50. However, notwithstanding all this the Tribunal itself reformulated the
Claimant's requested Declarations Nos. 2 and 4 into a request for specific performance;
and this was done without any indication being given to the Claimant of what the
Tribunal had in mind. The Claimant contends that the failure of the Tribunal to give
the Claimant an opportunity to comment upon the Tribunal's reconstruction and
amalgamation of Requested Declarations Nos. 2 and 4 amounted in all the
circumstances to a breach of the rules of natural justice depriving the relevant parts of
the Award of their validity.
51. In addition, the Award on its face reveals certain inconsistencies in the approach
of the Tribunal. Thus, on p. 21, in a passage with which the Claimant respectfully
agrees, the Tribunal said:
The jurisdiction of the Tribunal, as defined in Clause 28, and the law applicable to the
proceedings necessarily confine its task to a consideration of the claims and submissions
formulated by the Claimant, and the Award therefore rules exclusively on them.
53 ILR 297 370
However, as already stated, the Tribunal has not limited its task to a consideration of
claims formulated by the Claimant, but has reformulated them in such a way as quite
fundamentally to alter them. To the extent, therefore, that the Tribunal has examined
submissions not formulated by the Claimant it has, on its own statement of its
jurisdiction exceeded its competence; and its Award is in those respects ultra vires and
consequently void.
52. But the key passage which reveals the departure of the Tribunal from the
standards of natural justice which the Tribunal is bound to apply is to be found at p. 22
of the Award. Here the Tribunal said:
With respect to the analysis of facts and their legal implications the Tribunal has had the
benefit of argument presented by the Claimant alone. However, the Tribunal has felt both
entitled and compelled to undertake an independent examination of the legal issues deemed
relevant by it, and to engage in considerable legal research going beyond the confines of the
materials relied upon by the Claimant. The conclusions in the Award, therefore, are based on a
broader consideration of the issues than that permitted by the format of the Claimant's
argument in support of its claims. Thus, the Tribunal to the greatest extent possible has
endeavoured to eliminate any inherent adverse effects for the Repondent of its decision not to
appear as a party in the proceedings.
53. The Claimant, while not accepting that the Tribunal was under any obligation to
set so high the standard of its concern for the protection of the Respondent from the
consequences of its wrongful non-participation in the proceedings, does not at the
present juncture make an issue of that point.
54. The matter of which the Claimant complains is that it was not given any
indication of the broader considerations being taken into account by the Tribunal.
Hence the Claimant was not informed of the case which it was being required in the
mind of the Tribunal to meet. This is, effectively, a violation of the principle audi
alteram partem.
55. The practical effect here was as if the Tribunal had given the Respondent the
opportunity to make communications to it of which the Claimant was kept in
ignorance, or, in other words, had precluded the Claimant from knowing the case put
on behalf of the Respondent.
56. This was not the case in other arbitrations in which respondent Governments did
not appear. It was not the case in the Lena Goldfields arbitration (5 Annual Digest, pp. 3
and 426), or in the case of Société Européenne v. Yugoslavia (24 International Law
Reports, p. 760) or in the Sapphire arbitration (35 International Law Reports, p. 136).
On the contrary, in the last mentioned case, Judge Cavin said (at p. 170): “the default
of one party and the omission of a procedural step simply means that the case proceeds
without the step which has been omitted”.
57. The fact that, unknown to the Claimant, the Tribunal endeavours to eliminate
adverse effects for a defaulting respondent and, so to speak, prepares and argues the
latter's case, involves the infringement of a fundamental principle of law, namely, the
maxim audi alteram partem (on which see generally Cheng, General Principles of Law,
Chapter 14). The Claimant has been unable to find any case in which a tribunal has
371 53 ILR 297
endeavoured to eliminate adverse effects “for the respondent”, who had not appeared
and was in default. If the result of such endeavours is not made available to the
Claimant for comment, then obviously the Claimant is at a very grave disadvantage and
in fact has been deprived of the “equality of arms” to which he is entitled. A number of
cases in which the principle of equality of arms fell to be considered have come before
the European Commission on Human Rights. At the present stage it will be sufficient
to quote the views of J. E. S. Fawcett, The Application of the European Convention on
Human Rights (Oxford, 1969) who, on page 137, summarises the law as follows:
Equality of arms. The principle of the equality of arms (I'égalité des armes; Waffengleichheit) is
an expression of the rule audi alteram partem, and implies that each party to the proceedings
before a tribunal must be given a full opportunity to present his case, both on facts and in law.
This opportunity must be equal between the parties and limited only by the duty of the
tribunal to prevent in any form an undue prolongation or delay of the proceedings.
It will perhaps also be helpful to refer to the book by Professor Partsch, Die Rechte
und Freiheiten der europaischen Menschenrechtskonvention, where the development of the
law is described on pp. 151 ff. and where it is made very clear that the principle applies
both to criminal and civil proceedings.
58. The practice of the Commission has been approved by the European Court of
Human Rights by its judgment in the case of Neumeister of the 27th June 1968 where
the Court said (41 International Law Reports, at 357):
The Applicant has stated, and it has not been disputed by the Austrian Government, that the
decisions relating to his detention on remand were given after the prosecuting authority had
been heard in the absence of the Applicant or his legal representative on the written request
made by them. The Court is inclined to take the view that such a procedure is contrary to the
principle of ‘equality of arms’ which the Commission, in several decisions and opinions, has
rightly stated to be included in the notion of fair trial (procès équitable) mentioned in Article
6(1). The Court does not consider however that this principle is applicable to the examination
of requests for provisional release.
59. Perhaps it is worth adding that in the case of Flegenheimer the Italian/United
States Conciliation Commission consisting of Messrs. Sauser-Hall, Matturri and
Sorrentino (25 International Law Reports 91, at 98) spoke of “the principle, undenied in
matters of arbitration, that complete equality must be enjoyed by both parties to an
international dispute.”
60. The practical consequences of the Tribunal's failure to give due consideration to
the arguments presented by the Claimant and the Tribunal's examination of an
argument which was no part of the Claimant's case appear in two forms.
61. First, as is more fully shown in tabular form in Annex 3,[12] the Tribunal cited no less than
23 authorities which were not referred to by the Claimant and a further 13 authorities which,
though mentioned in the Memorial, were referred to in a different connection. Conversely, many
[12. Omitted.]
53 ILR 297 372
authorities were cited in the Memorial for the propositions advanced by the Claimant,
but these authorities were ignored by the Tribunal. It is not necessary to refer to these
numerous authorities at this stage, but it may be helpful to point out that this omission
is particularly striking in relation to the findings of the Tribunal on the important
section of the Memorial (paragraphs 190—199) in which the Claimant put forward the
proposition that the Libyan Government had no right to the oil which it could enjoy or
transfer to any third party. That section dealt with fundamental questions of Danish
public policy and International Law, and cited fourteen court decisions and twenty-one
publicists, to none of which does the Tribunal refer in this connection. These figures
alone serve to confirm the Claimant's contention that a substantial segment of the
Award was unrelated to the Claimant's case.
62. Secondly, even as regards the line of approach pursued, and the authorities
invoked, by the Tribunal, it must be said that if the Claimant had been made aware of
the Tribunal's thoughts in the course of the proceedings it would have reacted to them
most vigorously. The Claimant would, first of all, have insisted on the basic irrelevance
of the argument concerned with the non-existence of a remedy of specific performance
in international law; and it would, secondly have suggested in any event that a wrong
interpretation was being put upon the authorities cited, especially the judgment in the
Chorzow Factory Case, which appears generally to have been understood by States, as
well as by the most highly qualified publicists, in a sense opposite to that expressed by
the Tribunal.
63. In addition to this fundamental defect in the procedure pursued by the Tribunal,
there are a number of specific items in the Award in respect of which the Tribunal's
uncertainty about the position of the Claimant is evident and should have been cured
by the posing of appropriate questions.
64. Thus at p. 53 the Tribunal mentions the fact that the Claimant did not qualify
its contention that the Respondent's breach could not put an end to the contract“by
reference to the time element”. The Tribunal then continued:
… presumably the innocent party would retain his altered rights indefinitely.
66. Again, at the top of p. 56, the Tribunal raises a question as to the principles of
Libyan Law “on the questions of the continuity of the BP Concession, specific
performance and restitutio in integrum”. In fact, for the reasons set out earlier, the
second and third questions did not fall within the scope of the Claimant's argument.
Yet the Tribunal followed this question with these words:
373 53 ILR 297
The Tribunal has not been in a position to form an opinion in this respect except on the basis
of the argument presented by the Claimant which appears less than exhaustive.
The Claimant's argument on this point was less than exhaustive—not surprisingly,
considering the irrelevance in its view of the second and third questions. But if the
Tribunal thought the Claimant's arguments inadequate, it was the duty of the Tribunal
so to say. Instead it concluded (at p. 57) that “no certain conclusions as to the position
of Libyan law can be drawn on the material available”.
67. Further, at p. 64 the Tribunal places some reliance upon the current practice of
States as having some bearing on the question of an injured party's rights. In fact, this
point is misconceived—at any rate in the framework of the Claimant's claim. But the
point that matters is that the relevant statement of practice is introduced by the words:
“it is believed that the current practices of States …”. If the facts were material, and
they were so treated by the Tribunal, then the Tribunal should have put to the
Claimant a question on this point. But this was not done.
68. Lastly, in terms of the procedural aspects of the case, the Claimant is bound to
draw attention to two sentences at the end of the first paragraph on p. 95 of the Award:
While certain trends in the law are discernible, there are no precise and clear rules that provide
an obvious answer to any of the issues. The facts must be appraised and the law interpreted and
applied in a balanced consideration of the intrinsic merits of the case and the de facto position
of the parties.
IV
70. Accordingly, the Claimant now requests that as contemplated in the letter from
the Sole Arbitrator referred to in paragraph 2 above, a date should be fixed for the oral
hearing of the Claimant's application for a reopening and continuation of the
proceedings in relation to requested Declarations Nos. 2–6 inclusive.
[13. Omitted. Printed in Wetter, The International Arbitral Process, II (1979) p. 565.]
375 53 ILR 297
AWARD
CONTENTS
Page
PART I
INTRODUCTION 376
PART II
PROCEEDINGS OF THE TRIBUNAL 376
PART III
THE FEBRUARY MEMORANDUM 377
PART IV
THE ISSUE 380
PART V
OPINION OF THE TRIBUNAL 380
1. Applicable Law 380
2. Statutory Bases for Re-Opening under
381
Danish Law
(a) The 1972 Act 381
(b) Section 423 RPL 382
(c) Partial and Interim Decisions 384
3. Conclusions 384
[3] PART I
INTRODUCTION
This Tribunal rendered an award, dated as of 10 October 1973, in earlier
proceedings in the present case. The terms defined in that award, which was entitled
Award (Merits) and will be so called below, shall have the same meanings herein. The
same abbreviated citations will be used. The Award (Merits) need not be summarised
here.
[4] PART II
In subsequent correspondence, the date for such a hearing was established. The sole
relevant issue was defined as being whether the Tribunal was competent to re-open the
first stage of the proceedings. That issue was to be examined merely in view of the
general character of the Claimant's objections to the Award (Merits) made in the
February Memorandum.
On 8 May 1974, a meeting was held at Børsen in Copenhagen (“Copenhagen
Meeting”) at which the Claimant presented its arguments orally. Minutes were made by
the Tribunal. A verbatim record also was produced and approved by the Claimant
(“Verbatim Transcript”).
Copies of all correspondence between the Tribunal and the Claimant above referred
to have continuously been furnished by the Tribunal to the Respondent. An invitation
to participate in the Copenhagen Meeting was also sent to the Respondent, as were
copies of the February Memorandum, the Minutes of the Tribunal and the Verbatim
Transcript. The Respondent did not attend the Copenhagen Meeting and has not
acknowledged receipt of any of the communications of the Tribunal.
entitled to damages for the Respondent's breach of contract, was granted. The other five
requests were refused. The present application arises out of the circumstances and manner in
which this refusal took place.
6. The Claimant contends that in refusing these requests the Tribunal made a fundamental
error of law. This error is so substantial that it amounts to a failure by the Tribunal to apply the
law; and for that reason, in the first place, the relevant part of the Award is invalid.
[7] 7. What is this error? The Tribunal has held, in relation to requested declaration No. 2 that
‘the BP Nationalization Law was effective to terminate the BP Concession, except in the sense
that the BP Concession forms the basis of the jurisdiction of the Tribunal and of the right of
the Claimant to claim damages from the Respondent before the Tribunal’. As will presently be
indicated, the Claimant sees this conclusion as affected by more than one error. But the feature
which the Claimant submits is the most erroneous in law and the most significant in its
consequences is the proposition, implicit in the conclusion, that a party to a contract can by its
own breach put an end to the contract; or, to put the point in different but more specific terms,
that a Government may, by breaking a concession governed by a law other than its own, put an
end to its legal commitment. This conclusion runs contrary to every legal system connected
with the Concession, whether the principles of Libyan law, the principles of international law
or general principles of law.
8. This error of substance is not the only basis on which the Claimant is obliged to challenge
the validity of the Award. The manner in which the Tribunal reached its conclusions on
Requested Declarations Nos. 2–6 is such as to render the relevant part of the Award
procedurally defective and, for that reason, void. This procedural defect lies in the failure of the
Tribunal to apply a fundamental principle of natural justice—the principle of ensuring that
each party to proceedings knows, and is given an adequate opportunity to answer, the case
which it has to meet.
9. In the present arbitration the Respondent has at all material times known the case against it.
It has had the opportunity to reply. It has voluntarily chosen not to use it. The same is not true
of the Claimant. The Tribunal has clearly stated that ‘the conclusions in the Award … are
based on a broader consideration of the issues than that permitted by the format of the
Claimant's argument in support of its claims’.
It is in fact manifest from a perusal of the Award that the Tribunal has developed a whole line
of argument against the Claimant's request for Declarations Nos. 2–6 of which the Claimant
was totally unaware and to which it was given no [8] opportunity to reply. The elaboration by
the Tribunal of this line of argument, and the manner of its doing so, goes far beyond the
permissible limits of any such maxim as jura novit curia. This procedural error is exacerbated by
the fact that it has come about notwithstanding the repeated invitation by the Claimant to the
Tribunal to raise with the Claimant any points relating to the Claimant's argument about
which the Tribunal might feel any doubt.
379 53 ILR 297
Part IV, Summary and Conclusions, of the February Memorandum read as follows:
69. The contents of the present Memorandum may be summarised as follows:
(i) The Claimant contends that the Award rendered on 10 October 1973 is incomplete
and that, in consequence, the proceedings must be re-opened and continued in
order to enable the Sole Arbitrator to complete his Award.
(ii) The incompleteness of the Award arises from the fact that it is partially void in that
the Tribunal's conclusions upon requested Declarations Nos. 2–6 are invalid.
(iii) This invalidity is the consequence of
(a) certain substantive and fundamental errors of law affecting the above-mentioned
parts of the Award; and
(b) certain grave defects in the procedure followed by the Sole Arbitrator in
connection with those parts of the Award.
(iv) As to (a), the fundamental errors of law were: first, the treatment of the requests for
Declarations Nos. 2 and 4 as if they were the equivalent of a request for an order of
specific performance; second, the holding that a party violating its obligations under
a contract may by its breach bring the contract to an end; and third, the refusal to
deny legal effects to a measure rightly held to amount to a violation of international
law.
[9] (v) As to (b), the grave defects in procedure were: first, the treatment of the
Claimant's requests for Declarations 2 and 4 as if they were an application for an
order of specific performance; and, second, the failure of the Sole Arbitrator to
adhere to the principles of natural justice in the hearing of the case by reason of his
consideration, to the detriment of the Claimant, of a whole line of argument and of
authorities of which the Claimant was not informed and to which the Claimant was
given no opportunity to reply.
(vi) The duties and powers of the Sole Arbitrator in relation to a request for the re-
opening and continuation of the proceedings in the present case are governed by
Danish Law—the law to which the Sole Arbitrator, by his choice of Copenhagen as
the seat of the arbitration, expressly subjected the arbitral proceedings.
(vii) The position in Danish law is set out in the annexed opinion of Professor Foighel
and Professor Philip. This Opinion makes it clear that in Danish law
(a) an award suffering from the substantive errors and procedural faults of the present
Award would be regarded as partially void;
(b) the dissatisfied party should, in the first place, turn to the arbitrator to seek a re-
opening of the proceedings and the completion of the award; and
53 ILR 297 380
(c) it would be the duty of the arbitrator, in the circumstances of the present case, to
grant the application for a re-opening and continuation of the proceedings and to
complete the Award by eliminating the causes of its partial invalidity.
[10] PART IV
THE ISSUE
The sole issue to be decided by the Tribunal by the present Award was defined by the
Claimant in writing at the Copenhagen Meeting as follows:
The Claimant's formal submission is that the Tribunal is competent to reopen the proceedings
in the first stage of the arbitration for the purpose of considering the matters indicated in the
Claimant's Memorandum sent to the Tribunal with its letter of 14th February 1974.
[11] PART V
1. Applicable Law
In the Award (Merits), the Tribunal pronounced (p. 16) that it considered that the
procedural law of the arbitration was Danish law. It stated further:
The Tribunal is not competent to establish conclusively the nationality of its Award, for this
can only be decided by the courts of Denmark and of other jurisdictions in which enforcement
of the Award may be sought. However, the Tribunal deems this Award to be Danish, and the
proceedings have been conducted in a manner designed to be consistent with this view and
intent.
exclusively of Danish law. This implies that the Tribunal will not have occasion to
consider the Claimant's subsidiary and very able presentation on the practice of certain
international [12] or other than Danish arbitral tribunals and the opinions of learned
writers on the competence of such tribunals to grant re-hearings, nor the material
submitted to the Tribunal on the related aspects of Libyan law (including an opinion of
Professor Saba Habachy).
[13] While the 1972 Act contains no provision similar to Section 423 of the Danish
Code of Procedure (“RPL”), it does include rules on the invalidity of arbitral awards in
certain circumstances which have no counterpart in the provisions of RPL concerning
judgments of courts. The rules on invalidity are set forth in Section 7.
An editorial change was made in Section 7 during the travaux préparatoires which was
explained as follows by Retsplejerådet:
The Section corresponds to Section 5, first and second paragraphs, of the committee draft.
The division suggested in the committee draft of the rules on invalidity into two paragraphs
seems to imply that an arbitral award in the circumstances referred to in the first paragraph is a
nullity while, in the circumstances referred to in the second paragraph, the award may be set
aside only upon request. Such a distinction however, is not appropriate. An arbitral award
ought to be set aside only upon request. In accordance herewith, the rules on invalidity have
been brought together in one paragraph in Rådet's draft.
(Quoted from Hjejle, op. cit. pp. 306–307.)
53 ILR 297 382
The provision under 2 on the invalidity of an award based on the composition of the
arbitration tribunal or the manner in which the proceedings have been conducted may,
depending on the circumstances, be applied in cases of evident and [14] serious errors with
respect to the basis for the decision. Thus, e.g., an arbitral award may be set aside as invalid in
the event that the arbitration tribunal decides the dispute on a legal basis other than that agreed
between the parties.
(Quoted from Hjejle, op. cit., p. 311.)
It is significant that no period was established within which a claim for invalidity
must be brought, at the risk of being subsequently barred. Moreover, Section 7 appears
to be based on the conception of invalidity ex tunc. This interpretation is shared by
Professor Philip and Professor Foighel in their joint opinion attached to the February
Memorandum, paragraph 9.
The 1972 Act spells out in Section 7 those conditions under which an arbitral award
may be invalid, wholly or partly. As mentioned earlier, the Claimant argues that the
Award (Merits) is partially invalid pursuant to Section 7. The Claimant does not deny
that Danish courts (leaving aside the question what Danish court would be the proper
one, and the further question whether the Respondent successfully may claim sovereign
immunity) would have competence to entertain, upon the request of the Claimant, a
suit demanding a declaration of partial invalidity. The Claimant contends, however,
that such competence of Danish courts is not exclusive in the absence of an express
statutory provision to such effect and that the Tribunal is at liberty to re-open the
proceedings for the purpose of rectifying defects and errors allegedly made in its award
so long as the Tribunal has not become functus officio.
appeal, or grant a retrial if the case has been decided by the Supreme Court itself.
Section 423 RPL reads:
Upon petition, the Supreme Court may, in exceptional cases, permit that a case adjudged by
the Court be reviewed by it again provided that it appears very greatly probable that, through
no fault of the petitioner, the judgment has been based on incorrect information, and provided
that information is now available which will lead to a substantially different result, and
provided that all circumstances favourably support granting the petition including a
demonstration beyond doubt that the petitioner only in this way will be able to avoid or make
good a loss which is serious to him.
In the same circumstances, the Supreme Court may allow the appeal of a judgment rendered by
a court of appeal or a court of first instance which otherwise cannot be appealed …
The right to take advantage of the remedies dealt with in this Section cannot be waived.
The Tribunal, by a letter dated 21 May 1974, asked the Claimant to indicate
whether in its formal submission any of the matters indicated in the February
Memorandum also fell, wholly or in part, within the scope of Section 423 RPL.
[16] The Claimant, by a letter dated 10 June 1974, replied as follows:
With reference to your letter of 21st May the Claimant wishes to submit that it did not invoke
Section 423 of the Danish Code of Procedure as the basis for a re-opening of the arbitration
but only in order to show that the principle of a re-hearing is known and accepted in Danish
procedural law.
The legislative Commission which drafted the Section made the following
pronouncement on its scope and applicability:
As is apparent from the terms used in Section 271, this review by the Supreme Court is
considered to be something altogether extraordinary, something that the Supreme Court ought
not to permit without compelling reasons, and something of which use will therefore perhaps
not be made at all, or only on singular occasions over a long period of time. On the other hand,
for the very reason that the remedy provided for in this Section is meant to be a kind of
ultimate rescue device for justice in exceptional instances, it has been necessary to give it a
general form instead of enumerating a number of distinct occasions, as was done in the earlier
draft.
(Bemaerkinger til det of den ved allerhøjeste Reskript av llte Maj 1892 nedsatte
Proceskomission udarbejdede Udkast til Lov om den borgerlige Retspleje, Copenhagen,
1899, p. 115.)
Dr. Hjejle has suggested that Section 423 RPL might be applied by way of analogy
with respect to arbitral awards:
53 ILR 297 384
[17] The statement by Dr. Hjejle is to be understood to mean, not that the Danish
Supreme Court would entertain a petition to grant a re-opening of arbitration
proceedings, and remand a case decided by an arbitral award to the original or a new
arbitration tribunal, but in the sense that the arbitral tribunal itself might be competent
to grant a re-hearing on the basis of an application by analogy of Section 423 RPL.
3. Conclusions
A first question arising for consideration by the Tribunal must be that whether its
decisions on Requested Declarations Nos. 2 through 6 were final pronouncements on
those particular points, except to the extent that [18] certain issues under Requested
Declaration No. 5 were deliberately and expressly reserved for further argument and
subsequent decision.
The Tribunal finds that the question whether and to what extent its decisions on Requested
Declarations Nos. 2 through 6 are in the nature of a delafgørelse or a (mellemafgørelse, respectively,
as those concepts are defined in and have been applied by Danish courts pursuant to RPL, is not
of decisive relevance for purposes of determining the sole issue presently to be considered. In the
context of arbitration proceedings, the conceptual framework ought to be
385 53 ILR 297
phrased in terms which do not necessarily mirror in detail the technical construction of
RPL.
However, in these proceedings, the Tribunal is in the unique position of being able
to establish its own intentions as to the finality of the decisions made by it in the Award
(Merits). As is clearly borne out by the text of the decisions, they were intended to be
final, in accordance with their specific wording, with regard to Requested Declarations
Nos. 2 through 6, except as provided in respect of certain issues under Requested
Declaration No. 5. (The decisions on Requested Declarations Nos. 1 and 7 are not
contested). While this decision by itself would be sufficient, the Tribunal also holds that
its decisions on Requested Declarations Nos. 2 through 6 technically ought to be
qualified as delafgørelser.
The effect in law of the finality of the decisions will be considered in the following.
[19] As stated above, the Claimant submits that all objections raised by it against the
Award (Merits) in the February Memorandum, which are the sole grounds invoked by
the Claimant in support of its contention that the Award (Merits) is partially invalid,
fall within the scope of Section 7 of the 1972 Act. The Claimant does not dispute the
fact that it may plead partial invalidity before a Danish court to which the issue may be
presented. However, the Claimant refers to difficulties which might attend an attempt
on its part to institute an action before a Danish court in which it seeks a declaratory
judgment to the effect that the Award (Merits) is partially invalid, such as that of
establishing jurisdiction of a Danish court over a foreign State, and that of overcoming
a plea by the Respondent of sovereign immunity. The Claimant also states that it would
wish if possible to avoid the publicity which might attend State court proceedings.
However, these procedural aspects have not been fully argued by the Claimant for the
reason that it contends that the relevant question is not whether alternative remedies are
available to it, or desirable for it to obtain. In the Claimant's view, the sole important
question is whether the powers granted to Danish courts under Section 7 of the 1972
Act are exclusive. The Claimaint argues that they are not, as no express [20] legislative
provision so stipulates; hence, the Claimant concludes that the Tribunal is competent
to grant a re-hearing.
In considering the issue whether under Danish law an arbitration tribunal is
competent to grant a re-hearing in circumstances such as the present, the Tribunal
attaches overriding importance to the fundamental principle which for centuries has
been the law of the land and which found striking expression in the Danish Code of
1683 to the effect that an arbitral award, once rendered, stands:
53 ILR 297 386
Where the parties refer their case and dispute to the arbitration of men of trust, either with or
without an Umpire, then what such arbitrators say and decide, to the extent that their mandate
permits them to do so, shall stand and cannot be brought before any court for reversal, subject
to the prerogatives of the King.
It is true that a rule expressed in such drastic brevity must be qualified in some
respects. Thus, the award must have been intended to be final in character and not
provisional or conditional; the Tribunal has already held that in the relevant aspects, its
decisions in the Award (Merits) do partake of such finality in accordance with their
terms. Further, the award may be invalid. A remedy is now provided in Section 7 of the
1972 Act based on precedents evolved over a long period of time by Danish courts
which successively have developed doctrines under which courts in certain
circumstances may set aside defective [21] arbitral awards. So settled had these judicial
doctrines become that at the time of the enactment of the 1972 Act, those responsible
for its drafting thought it would be unnecessary in principle to include what later
became Section 7. However, they did so for the sake of convenience in order to provide
a statutory regulation of the assistance or intervention that might be sought from the
courts in arbitration matters. The Committee stated:
If for these reasons it may be said to be not strictly necessary to legislate on the powers of the
courts to set aside arbitral awards, it may nevertheless in the opinion of the Committee be
appropriate to suggest a provision on the setting aside of arbitral awards in connection with the
other proposed statutory rules which all concern the assistance of the courts to, or their control
over, arbitration proceedings.
(Ibidem, p. 30.)
The Claimant has not adduced any authority that convincingly supports its case. At
the Copenhagen Meeting, a pronouncement made in 1934 by Den faste Voldgiftsret
(UfR 1934, pp. 924–925) was extensively discussed. However, as Professor Philip
acknowledged (Verbatim Transcript, p. 97), that statement was an obiter dictum. The
remark relied upon by the Claimant, which was made by a court having limited
jurisdiction in the field of labour law (though possessing great authority) in a case
decided 40 years ago, read:
And just as doubts may arise as to the interpretation and scope of an arbitral award, so there
may be instances in which an arbitral award that has been rendered may be revised or changed,
cf. in this context Sections 221 and 423 [RPL].
(UfR 1934, p. 925.)
[22] It is significant that the sole principles which the court had in mind
were the provisions on formal errors (such as miscalculations
387 53 ILR 297
and typographical errors) dealt with in Section 221 RPL and the procedures under
Section 423 RPL. In any event, even if the pronouncement supported the Claimant's
case, which prima facie it does not, it cannot be given so extensive an interpretation as
to form the basis of a rule of law having far-reaching significance in the whole field of
arbitration.
The issue in the other case discussed by the Claimant (H.D. 20 May 1953, H.R.T.
1953, p. 253) did not concern the competence of an arbitral tribunal to grant a re-
hearing, and the Tribunal, after careful consideration, has found that that case does not
offer any guideline in the present proceedings. No single instance of a Danish
arbitration tribunal having permitted the re-opening of arbitration proceedings that
have resulted in a final award in circumstances such as the present, or indeed in any
circumstances, has been cited by the Claimant or otherwise been brought to the
attention of the Tribunal.
The Tribunal concludes that to admit a competence on the part of arbitration
tribunals to re-open proceedings which have been brought to an end by the rendering
of an award conceived of as final in character would be tantamount to setting aside the
fundamental rule which is at the very basis of Danish arbitration law. The argument of
the Claimant that the competence conferred upon Danish courts in Section 7 of the
1972 Act is non-exclusive [23] is not convincing. It has indeed never been suggested in
the course of the travcux préparatoires that concurrent jurisdiction could be exercised by
arbitration tribunals in regard to invalidity issues. It is prima facie unlikely that the
Danish legislative authorities, if made aware of the question, would have considered an
arbitral tribunal which allegedly had violated, e.g., basic procedural safeguard rules, to
be a proper forum for passing judgment upon its own acts. As a general proposition,
therefore, it would be impossible to hold that under Danish law, an arbitral tribunal is
competent to re-open the proceedings in circumstances such as the present.
Nor has the Tribunal found any support, or even a suggestion, in the Danish legal
literature for the proposition that an arbitral tribunal, outside the scope of an
application by analogy of Sections 221 and 423 RPL, has competence to re-open
proceedings that have been finally closed.
In these circumstances, it would be contrary to established standards of judicial
caution for the Tribunal to accept that it has competence to re-open the proceedings as
presently asked for.
For obvious reasons, the Tribunal does not need to consider what its decision would
be in the event that the BP Concession, or both Parties to the proceedings, would have
conferred upon the Tribunal the power to grant a revision.
53 ILR 297 388
[24] The Claimant submits that it has not invoked Section 423 as the basis for a re-
opening of the first stage of the proceedings. The Tribunal therefore is unable to
consider whether an application for such a re-opening may be granted by analogous
application of Section 423 RPL and cannot even enter into a discussion of the various
principles and distinctions contained in that Section that, directly or indirectly, might
have a bearing on the issue to be decided.
FOR THESE REASONS, THE TRIBUNAL DECIDES that, on the basis of the Claimant's
present request, it is not competent to re-open the proceedings of the first stage of the
arbitration for the purpose of considering the matters indicated in the February
Memorandum;
AND THE TRIBUNAL FURTHER DECIDES to order the Claimant to present a Memorial
in fifteen copies setting forth its case with respect to its request for Declaration No. 5
except as decided in the Award (Merits) and to its claim for damages, accompanied by
all supporting documents and other relevant materials, on or before 1 April 1975 or
such other date as the Tribunal may later fix.